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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
Last updated
August 23, 2019 4:49 AM EDT
Location(s)

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Primary Investigator
Affiliation
University of Gothenburg
Other Primary Investigator(s)
PI Affiliation
Uppsala University
PI Affiliation
Uppsala University
PI Affiliation
Swedish Tax Agency
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
Not available
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