Experimental Design Details
The study includes four closely related experiments that differ with respect to (i) repayment period and (ii) the nature of the subject pool. First, we aim at the taxpayers who sold their property more than one year ago, and thus the period for reporting has already expired (the “ex-post” experiment), and at the taxpayers who sold their property in the last year and are supposed to report it in the current standard reporting period (the “ex-ante” experiment). The main difference important for us is that we expect the ex-post control group basically not to declare the tax unless they receive a letter in our project, but in the ex-ante control group we expect a rate of 30% response independent of our letter, based on data from recent years as provided by TASR. The second dimension consists of whether the recipient is an individual or spouses selling a jointly owned property. In the case of spouses, we send a letter either to the female or the male owner. We decided to study them separately from the individual owners because it allows us to observe the effect of sending a letter to either husband or wife on the reaction of the whole couple, be it the recipient, their spouse, or both.
The baseline letter (T0) is formulated as clearly as possible, stating the reason for sending it to a recipient which is a change of ownership of a property in the land registry and the absence of a corresponding tax declaration. It contains all important information on how, when, and where to declare and pay the tax in the simplest way possible, at the same time meeting the conditions of full and proper information from tax authorities. Additionally, it includes a list and simple definitions of possible exceptions to the capital gains tax on property on the second page.
We designed four text treatments (T1-T4) where we add an extra paragraph in the middle of the baseline letter (T0), and one orthogonal treatment (A vs B) where we add an additional navigation leaflet to the letter which contains a flow-chart of possible situations of taxpayers, thereby aiming at further simplification of the decision whether or not to pay the Tax.
● Treatment T1 includes one paragraph with a reminder of tax authorities having the legal right to conduct an audit and inspect all types of income and the fact that by not paying the capital gains tax on property the chance of an audit is being increased. In the case of self-reported income, threat-of-audit letters are expected to have a positive deterrence effect on tax evasion, in line with the extended standard model of (rational) tax evasion (Kleven et al., 2011).
● Treatment T2 adds a paragraph with information on fees for late payment and a late tax declaration and encouraging information about these fees being significantly lowered if the income is declared before the stated deadline. This message emphasizes the possibility to lower costs if an immediate action takes place, which is known to be an effective mechanism in tax correspondence (De Neve et al., 2020).
● Treatment T3 adds a paragraph about taxes being an important part of the duties of citizens and necessary to offer free education, healthcare, and social benefits. It also states that not paying the taxes is unfair towards all paying citizens. By appealing to injunctive social norms and highlighting that the recipients' behavior might be considered as a deviation from moral standards, we aim to raise explicit moral costs of not paying the tax. Moreover, by listing the public goods we encourage taxpayers to derive utility from a public service provision (Hallsworth et al., 2017).
● Treatment T4 adds an extra sentence to the baseline letter framing non-payment of the tax being viewed by tax authorities clearly as commission instead of omission. This reframing addresses the omission strategy of taxpayers by changing the perceived nature of the action, resulting in the expectation of greater punishment for evasion of paying taxes (Hallsworth et al., 2015).