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.