The Effectiveness of Different Tax Credits in Increasing the Demand for Legally Provided Household Services – A Discrete Choice Experiment

Last registered on July 26, 2022

Pre-Trial

General Information

Title

RCT ID

AEARCTR-0009800

Initial registration date

July 24, 2022

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

July 26, 2022, 1:54 PM EDT

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

Locations

Country

Germany

Region

Primary Investigator

Name

Lilith Burgstaller

Affiliation

Contact Primary Investigator

Other Primary Investigator(s)

PI Name

Sarah Necker

PI Affiliation

ifo Zentrum für Soziale Marktwirtschaft und Institutionenökonomik

Contact Investigator

PI Name

Annabelle Doerr

PI Affiliation

Contact Investigator

Additional Trial Information

Status

On going

Start date

2022-07-22

End date

2022-07-30

Keywords

Behavior, Governance, Labor, Welfare

Additional Keywords

tax evasion, policy schemes, tax incentive schemes, randomized control trial, discrete choice experiment

JEL code(s)

H26, C93, D10

Secondary IDs

Prior work

This trial is based on or builds upon one or more prior RCTs.

Abstract

Tax compliance is difficult to enforce when services are provided to private households. In order to incentivize private consumers to act as third-party reporters, several countries have introduced monetary incentives such as tax credits for consumers that demand legally provided services. We study the causal effects of tax credit schemes for household services on consumers’ willingness to demand legally provided services. We implement a randomized control trial within a survey of consumers in Germany. Survey participants are randomly assigned to 1) a baseline scenario without a tax credit, 2) a tax credit of 20% that is granted “at source”, i.e., at the time of service consumption, as in Sweden, 3) a tax credit of 20% that can be claimed with the annual tax return, i.e., consumers receive the credit with some delay, as in Germany. To investigate the effect of the size of the tax credits we additionally implement two scenarios in which the tax credit is 30% via the tax return (scenario 5) and at source (scenario 6). Moreover, we are interested whether participants' willingness to pay differs when they do not have to calculate the tax refund themselves but the final price (decreased by the value of the subsidy) is displayed to them. Therefore, we add an additional scenario (scenario 4) where we show participants the final price. We aim to examine how consumers' preferences and their willingness to pay for legally provided services varies across these three conditions. We identify the willingness to pay with a discrete choice experiment. We hypothesize that the existence of a tax credit increases consumers' demand for legal services and their willingness to pay a higher price for legality. We expect that a tax credit granted at the time of consumption is more effective than the tax credit claimed with the annual tax return and that the tax credits of 30% increase the WTP to a greater extent than the tax credits of 20%. Moreover, we expect the the pre-calculation of the final price to increase consumers' WTP compared to a scenario where no such calculation takes place.

External Link(s)

Registration Citation

Citation

Burgstaller, Lilith, Annabelle Doerr and Sarah Necker. 2022. "The Effectiveness of Different Tax Credits in Increasing the Demand for Legally Provided Household Services – A Discrete Choice Experiment." AEA RCT Registry. July 26. https://doi.org/10.1257/rct.9800-1.0

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Experimental Details

Interventions

Intervention(s)

Intervention Start Date

2022-07-22

Intervention End Date

2022-07-30

Primary Outcomes

Primary Outcomes (end points)

We consider the weights for different attributes of the services, the willingness to pay for legal services as well as the probability to choose an offer with invoice as primary outcomes of the study. These parameters are identified from a discrete choice experiment in which respondents have to choose between two service offers that differ in four attributes: availability, recommendation, reciept of an invoice, and price. In the analysis, we will regress respondents choices on indicators of these attributes. From this regression, we can infer how consumers weight the different attributes in their decision-making. By dividing the coefficient of the invoice attribute by the coefficient of the price attribute, we can calculate the willingness to pay for a service with invoice, i.e., wich is legally reported to tax authorities.

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)

Secondary Outcomes (explanation)

Experimental Design

We study the causal effects of tax credit schemes for household services on consumers’ preferences for different attributes of the services and their willingness to pay for legality. Therefore, we implement a randomized control trial within a survey of consumers in Germany. Survey participants are recruited by a survey agency (Consumer field works) and interviewed with an online questionnaire.

The survey participants will be randomly assigned to six treatments. The first treatment is the baseline scenario. Respondents in this scenario will be informed that there is no tax credit available when they demand household services. The second treatment is a scenario in which the survey participants are informed about the existence of a tax credit that is granted “at source”, i.e., at the time of service consumption as in Sweden. If consumers decide to demand a legal service they can benefit from an immediate price reduction of 20% in form of a tax credit. The third treatment is a scenario in which the consumers are informed about the existence of a tax credit that can be claimed with the annual tax return, i.e., the consumers receive the credit with delay, as in Germany. If consumers choose the legal service they can deduct 20% of the price of that service from their tax bill. In the forth treatment, the final price (price - tax credit) in displayed to the participants. Apart from this feature, the treatment is the same as treatment 3. In treatment 5 we vary the size of the subsidy (30%). Apart from this feature the treatment is the same as treatment 2. In treatment 6 we, again, vary the size of the subsidy (30%). Apart from this feature the treatment is the same as treatment 3.

The outcomes of interest in this study are, first, the preferences of consumers for different attributes of the service, namely the receipt of an invoice, the price, whether the service provider was recommended by a friend or the availability of the provider. Second, we are interested in consumers' willingness to pay for a legal service. We identify this parameter by using a discrete choice experiment. We confront each respondent with seven choice sets. In each choice set, we contrast the offers from two service providers that may differ in the four mentioned attributes (legality, price, availability, recommendation). Overall we consider 70 different choice sets that are clustered in 10 blocks. Each respondent is randomly confronted with one block (7 choice sets). The answers to these choice sets allow us to identify how much weight is given to each attribute by consumers and we can also estimate their willingness to pay for legality, i.e., how much they are willing to pay more for a legal service.

Experimental Design Details

Randomization Method

The random assignment of respondents to the six treatments and the random assignment of choice sets to respondents in the discrete choice experiment is implemented with the survey software Qualtrics.

Randomization Unit

Survey respondents are randomly assigned to six treatments. Furthermore, in the discrete choice experiment, we randomly assign one out of 10 blocks of choice sets to each respondent.

Was the treatment clustered?

Yes

Experiment Characteristics

Sample size: planned number of clusters

We plan to recruit 1300 survey participants.

Sample size: planned number of observations

We plan to present 7 choice sets to 1300 survey participants. This leads to a planned number of observations of 9100 observations.

Sample size (or number of clusters) by treatment arms

The 1300 survey participants will be assigned to six treatments. Thus, we plan to observe about 215 participants per treatment, which leads to 1505 observations per treatment arm.

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

Supporting Documents and Materials

IRB