Social Norms and Tax Compliance: A Study of the Mechanisms

Our intervention consists in sending letters to potential rental income debtors living on six of the most affluent districts in Peru. We are sending four types of messages: (i) a reminder (to serve as a control group); (ii) a message referring to social norms which informs tax payers that most of their neighbors pay their taxes; (iii) a message referring to civic duty which highlights the importance of paying taxes to fund social policies; and (iv) a message that informs tax payers about the enforcement actions taken by the tax authority. Individuals in the evaluation sample were randomly assigned to one of these four groups. Each individual from each group will receive four times the same message (one per month). Letters will be complemented with emails and SMS.

The contents of these messages are (in English, but recall that original messages are in Spanish):

Reminder
"If you receive rental income , remember to pay your tax.
Find out how to declare and pay this type of tax at http://personas.sunat.gob.pe/alquilo-mi-casa-o-auto.
If you receive rental income and have already paid your taxes, congratulations!
Sincerely".

Social norms
"If you receive rental income, remember to pay your tax.
Note that most of the residents of Barranco, La Molina, Miraflores, San Isidro, San Borja and Surco comply with their rental income taxes.
Find out how to declare and pay this type of tax at http://personas.sunat.gob.pe/alquilo-mi-casa-o-auto.
If you receive rental income and have already paid your taxes, congratulations!
Sincerely".

Civic duty
"If you receive rental income, remember to pay your tax.
"Note that if all residents of Barranco, La Molina, Miraflores, San Isidro, San Borja and Surco pay their rental income taxes, it will be possible to build more than 90 Health Centers in the poorest regions of Peru."
Find out how to declare and pay this type of tax at http://personas.sunat.gob.pe/alquilo-mi-casa-o-auto.
If you receive rental income and have already paid your taxes, congratulations!
Sincerely"

Enforcement
"If you receive rental income, remember to pay your tax.
Note that SUNAT is striving to detect rental income tax debtors. We have already identified 78,000 debtors in Barranco, La Molina, Miraflores, San Isidro, San Borja and Surco.
Find out how to declare and pay this type of tax at http://personas.sunat.gob.pe/alquilo-mi-casa-o-auto.
If you receive rental income and have already paid your taxes, congratulations!
Sincerely"

2018-10-01

2019-01-25

Tax compliance, and the money value of rental income tax paid.

These outcomes will be computed from the administrative data set provided by the tax authority.

Perceived social norms, relevance of social norms for individual behavior.

We will collect survey data asking individuals about their perceived tax compliance ratio (percentage of individuals who pay their rental income taxes).
We will ask individuals several questions to gauge the importance of other people's opinions and actions when deciding their own behavior.

We randomly assign each of the four types of messages to our sample of potential rental income debtors. To identify our sample of potential rental income debtors, the tax authority compiled a database of individuals that: (i) lived in the districts of Barranco, La Molina, Miraflores, San Borja, San Isidro or Surco; (ii) owned at least two or more properties on different places; and (iii) did not declare nor pay rental income taxes in 2018.

Randomization done in office by a computer.

Individual level.

No

No clusters. Randomization was done at the individual level.

9,024 individuals.

2,256 individuals per treatment arm (2,256 in the control group).

Assuming power = 80%, size of the test = 5% and no clustering, we can detect a minimum effect of 0.085 standard deviations for continuous variables (such as tax payments). For outcomes such as the probability of tax compliance, assuming an average tax compliance of 50% for the control group, we can identify an effect of 4.2 percentage points. Assuming an average tax compliance of 1% for the control group, we can identify an effect of about 2.0 percentage points. Hence, the minimum effect we can detect is around [2.0, 4.2] percentage points.