When nudge comes to shove - soft vs hard incentives for tax compliance

Last registered on August 23, 2019

Pre-Trial

Trial Information

General Information

Title
When nudge comes to shove - soft vs hard incentives for tax compliance
RCT ID
AEARCTR-0002208
Initial registration date
May 09, 2017

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
May 09, 2017, 11:50 AM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated
August 23, 2019, 4:49 AM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Region

Primary Investigator

Affiliation
University of Gothenburg

Other Primary Investigator(s)

PI Affiliation
Swedish Tax Agency
PI Affiliation
Uppsala University
PI Affiliation
Uppsala University

Additional Trial Information

Status
In development
Start date
2017-12-04
End date
2020-12-06
Secondary IDs
Abstract
In Sweden, tax delinquents are treated differently depending on the size of the tax debt. The Swedish tax law postulates that a taxpayer who neglects to pay their tax debt gets reminders and have to pay sizeable interest if the debt does not exceed SEK 2,000 (approx. EUR 210). However, debts exceeding SEK 2,000 are instead handed over to the Enforcement Agency (EA), which makes a big difference.
If the debt is handed over to EA one has to pay an additional fee of SEK 600 and if one does not pay the debt very quickly (including the fee), one receives a payment default, which makes it very hard to rent an apartment, get a loan or a credit card. Hence, it is a severe threat to have the debt handed over to the EA.

Through this existing discontinuity we have been able to analyze the causal effect of enforcement using an RD design. The short run (one month) effect of the threat of having the debt handed over to EA is about 7 percentage points, while the additional effect of actual transfer to the EA is about 14 percetage point (measured over 2 additional months). The total causal effect from being treated (having a debt slightly above SEK 2,000) increases the likelihood of paying the tax debt from roughly 53 % to 74 % measure over three months.

Sending rather small tax debts to the EA is costly, both to society and to the individuals. In the proposed trial we will investigate if a similar effect, as that from strict enforcement, could be reached by a milder nudge. We will make use of a nudge formulation, which in previous research has shown to be effective (e.g., Hallsworth et al, 2014). Moreover, we will explore whether people really understand the meaning of having a debt handed over to EA, by in one treatment supplying information about EA. In our trial we will add an extra piece of paper to the letters automatically sent out from the Tax Agency to the universe of those who in December 2017 have not paid their taxes (which are due by November) and where the size of the debt is between SEK 1,000 and 3,000 (we expect this number to be roughly 7,000 individuals). Those who have a debt below 2,000 randomly will receive either i) a control letter or ii) a nudge letter reminding them that a majority pays their taxes on time and that they still haven't done so. Those with a debt exceeding 2,000 by law receive the EA threat, but in our trial also one of four treatment letters: i) the control letter, ii) the nudge letter, iii) short information about what having the debt handed over to EA implies, or iv) a letter including both the nudge and the information (an equal number of tax delinquents receive each type of letter). This enables us to quantify the effects from the treatments and also to compare it to the effect of enforcement. A potential policy implication would be to increase the limit where debts are handed over to EA.

External Link(s)

Registration Citation

Citation
Andersson, Henrik et al. 2019. "When nudge comes to shove - soft vs hard incentives for tax compliance." AEA RCT Registry. August 23. https://doi.org/10.1257/rct.2208-3.0
Former Citation
Andersson, Henrik et al. 2019. "When nudge comes to shove - soft vs hard incentives for tax compliance." AEA RCT Registry. August 23. https://www.socialscienceregistry.org/trials/2208/history/52206
Experimental Details

Interventions

Intervention(s)
Letters will be sent out in December 2017.
Intervention Start Date
2018-12-04
Intervention End Date
2019-01-02

Primary Outcomes

Primary Outcomes (end points)
The short-run variables of interest are tax payments and timing of the tax payments. In the longer run also timing of tax filing and voluntary tax compliance are of interest.
Primary Outcomes (explanation)
Voluntary tax compliance includes variables like itemized deductions and timing of paying taxes.

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
In our trial we will add an extra piece of paper in the letters automatically sent out from the Tax Agency to the universe of those who in Decemeber 2017 have not paid their taxes (which are due by November) and have a debt between SEK 1,000 and 3,000 (we expect this number to be roughly 7,000 individuals based on previous year's data). Those who have a debt below 2,000 randomly receive either i) a control letter or ii) a nudge letter reminding them that a majority pays their taxes on time and that they still haven't done so. Those with a debt exceeding 2,000 by law receive the EA threat, but in our trial also one of four treatment letters: i) the control letter, ii) the nudge letter, iii) short information about what having the debt handed over to EA implies, or iv) a letter including both the nudge and the information (an equal number of tax delinquents receive each type of letter).
Experimental Design Details
The various letter formulations:
i) Control: Here comes a reminder that you have to pay your taxes due and information how
you easily do that.
ii) Nudge: In Sweden, more than nine out of ten pay their tax on time. You have still not done
so this year. Therefore you here get a reminder and information how you easily pay your tax.
iii) Info: Here comes a reminder that you have to pay your taxes due and information how you
easily do that. Pay on time and your debt will not end up with the Enforcement Agency. If
the debt is handed over to them you have to pay SEK 600 in excess of your tax debt. You
also risk to get a troublesome payment default. Such a payment default namely remains in
the registers of the credit bureaus for three years and make it hard for you to e.g., borrow
money or rent an apartment.
iv) Nudge + Info: In Sweden, more than nine out of ten pay their tax on time. You have still
not done so this year. Therefore you here get a reminder and information how you easily pay
your tax. Pay on time and your debt will not end up with the Enforcement Agency. If the
debt is handed over to them you have to pay SEK 600 in excess of your tax debt. You also
risk to get a troublesome payment default. Such a payment default namely remains in the
registers of the credit bureaus for three years and make it hard for you to e.g., borrow money
or rent an apartment.
Randomization Method
randomization done in office by a computer (at the Tax Agency)
Randomization Unit
Individual
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
All individuals who, in December 2017 have a tex debt between SEK 1,000 and SEK 3,000. Based on data from previous years we expect this number to be around 7000 individuals, or about 4000 in [1000-2000) and about 3000 in [2000-3000).
Sample size: planned number of observations
All individuals who, in December 2017 have a tex debt between SEK 1,000 and SEK 3,000. Based on data from previous years we expect this number to be around 7000 individuals, or about 4000 in [1000-2000) and about 3000 in [2000-3000).
Sample size (or number of clusters) by treatment arms
Below the threshold SEK 2,000, 50% receive the control letter and 50% the nudge treatment. Above the threshold, 25% receive each of the four letter types.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number

Post-Trial

Post Trial Information

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Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials