Tax Debt Enforcement: Theory and Evidence from a Field Experiment in the United States

We present theory and evidence about the enforcement of tax delinquencies, which are tax debts incurred with the government. In our model, the tax agency relies on a financial penalty and a social penalty that involves publishing the names of tax delinquents online, a policy that is becoming increasingly common. We show that, when the tax agency cares about social welfare as well as revenues, the optimal policy involves a mix of financial and social penalties. We conducted a field experiment with 35,000 tax delinquents who owed half a billion dollars in three U.S. states. We find that increasing the salience of both financial and social penalties reduces tax delinquencies. We also provide suggestive evidence that, as predicted by our model, the effectiveness of social and financial penalties depends on the debtor's income garnishability.