Enhancing Tax Compliance with Administrative Nudges: Experimental Insights from Indonesia

The experimental design focused on improving small businesses' tax compliance, particularly related to responses to administrative nudges which affecting their tax monthly payment and tax return submission compliance.

This trial employs three treatment letters: (1) a simplification letter, which reduces complexity in the existing correspondence, improves visual design, and adopts a less formal style; (2) a deterrence letter, which emphasises administrative penalties for non-compliance, the potential application of computerised audits, and subsequent enforcement actions; and (3) a public goods provision letter, which highlights taxpayers’ contributions to the national budget, with particular reference to public expenditure. Supplementary informative flyers are appended to the literacy and public goods provision letters. The use of colour schemes and graphical elements in the literacy and social norm letters is informed by the literature on colour psychology, with the objective of enhancing cognitive and affective engagement.

For the length of the experiment, the treatments will be contrasted with a control group comprised of individuals who did not receive the letters. The treatment impact of each intervention will be determined by comparing the average outcomes of the intervention group to those of the control group. There will be no interaction testing between treatments.

2025-10-15

2025-11-30

Taxpayer's inbound communication (responses)

Taxpayer responses refer to the behavioural adjustments undertaken by taxpayers in reaction to administrative interventions such as simplification, deterrence cues, and social norm appeals. These responses may be observed across several dimensions, including filing timeliness, accuracy of reported liabilities, and payment behaviour. Quantitatively, responses are measured by the volume of taxpayer communications with the tax office, while qualitatively they are assessed through the content of those communications.

Tax payment, tax filing

This experimental design is structured to evaluate the effectiveness of taxpayer communication strategies through a carefully staged field trial. The intervention will be implemented in collaboration with Directorate General of Taxes (DGT) offices, with taxpayers randomly assigned to treatment and control groups to ensure comparability. The treatment consists of letters emphasising different behavioural prompts, allowing the trial to test which messages are most effective in encouraging compliance. By embedding randomisation at the taxpayer level, the design minimises bias and enhances the credibility of the causal inference that can be drawn from the results.

The trial proceeds in phases, beginning with a pilot in November 2025, during which approximately 16,000 letters will be distributed. This phase will primarily assess operational feasibility, logistics, and the responsiveness of taxpayers to the interventions, while also providing early insights into their impact. Longitudinal data collection will extend into early 2026, capturing taxpayer behaviour over multiple reporting cycles. To promote transparency and facilitate independent validation, the trial will be registered in the AEA RCT Registry, with de-identified data made available by the DGT on a restricted basis, ensuring both research integrity and strict confidentiality safeguards.

To ensure credible stratified randomisation, taxpayers with comparable baseline characteristics were grouped into strata. Within each stratum, cases were randomly allocated to one of the treatment groups or to the control group, thereby achieving a balanced distribution of baseline characteristics across groups. Randomisation was implemented in \texttt{Stata\textsuperscript{\textregistered}} using a random variable generator with randomly selected seeds. For stratified randomisation, the user-written command \texttt{randtreat} (version~1.4) was employed.

regional tax office

Yes

7 regional tax offices

16,000 taxpayers

4000 taxpayers control, 4000 taxpayers T2, 4000 taxpayers T2, 4000 taxpayers T3

Enhancing Tax Compliance with Administrative Nudges: Experimental Insights from Indonesia