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The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed using a Natural Field Experiment

Author

Listed:
  • Justin E. Holz

    (University of Chicago - Harris School of Public Policy)

  • John A. List

    (University of Chicago - Department of Economics; NBER)

  • Alejandro Zentner

    (University of Texas at Dallas - Naveen Jindal School of Management)

  • Marvin Cardoza

    (Direccion General de Impuestos Internos)

  • Joaquin Zentner

    (Inter-American Development Bank)

Abstract

This paper uses a natural field experiment to examine the effectiveness of specific nudges on tax compliance amongst firms and the self-employed in the Dominican Republic. In collaboration with the Dominican Republic’s tax authority, we designed messages for more than 28,000 self-employed workers and over 56,000 firms. Leveraging administrative tax data, we find evidence that our nudges (increasing the salience of prison sentences or public disclosure of tax evaders) have large effects on increasing tax compliance, primarily working through the channel of decreasing claimed tax exemptions. Interestingly, we find that firms are more impacted than the self-employed, and that firm size is critically linked to nudge effectiveness: larger firms are considerably more influenced by nudges than smaller firms. We find this latter result noteworthy given the paucity of evidence showing significant behavioral impacts of nudges amongst the largest players in a market. Overall, our messages increased tax revenue by $193 million (roughly 0.23% of the Dominican Republic’s GDP in 2018), with over $100 million constituting income that the government would not have received without our field experimental nudges.

Suggested Citation

  • Justin E. Holz & John A. List & Alejandro Zentner & Marvin Cardoza & Joaquin Zentner, 2020. "The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed using a Natural Field Experiment," Working Papers 2020-113, Becker Friedman Institute for Research In Economics.
  • Handle: RePEc:bfi:wpaper:2020-113
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    Cited by:

    1. Le Maux, Benoît & Necker, Sarah, 2023. "Honesty nudges: Effect varies with content but not with timing," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 433-456.
    2. John List, 2021. "How Field Experiments in Economics Can Complement Psychological Research on Judgment Biases," Natural Field Experiments 00738, The Field Experiments Website.
    3. Martin Brown & Jan Schmitz & Christian Zehnder, 2023. "Moral Constraints, Social Norm Enforcement and Strategic Default in Weak and Strong Economic Conditions," Working Papers 23.03, Swiss National Bank, Study Center Gerzensee.
    4. Brad C. Nathan & Ricardo Perez-Truglia & Alejandro Zentner, 2020. "My Taxes are Too Darn High: Why Do Households Protest their Taxes?," NBER Working Papers 27816, National Bureau of Economic Research, Inc.
    5. Holz, Justin E. & List, John A. & Zentner, Alejandro & Cardoza, Marvin & Zentner, Joaquin E., 2023. "The $100 million nudge: Increasing tax compliance of firms using a natural field experiment," Journal of Public Economics, Elsevier, vol. 218(C).
    6. Ani Qi & Zeyu Ji & Yuanchao Gong & Bo Yang & Yan Sun, 2022. "The Impact of the Gain-Loss Frame on College Students’ Willingness to Participate in the Individual Low-Carbon Behavior Rewarding System (ILBRS): The Mediating Role of Environmental Risk Perception," IJERPH, MDPI, vol. 19(17), pages 1-12, September.
    7. C. Yiwei Zhang & Jeffrey Hemmeter & Judd B. Kessler & Robert D. Metcalfe & Robert Weathers, 2023. "Nudging Timely Wage Reporting: Field Experimental Evidence from the U.S. Supplemental Security Income Program," Management Science, INFORMS, vol. 69(3), pages 1341-1353, March.
    8. Eric Floyd & Michael Hallsworth & John List & Robert Metcalfe & Kristian Rotaru & Ivo Vlaev, 2022. "What motivates people to pay their taxes? Evidence from four experiments on tax compliance," Natural Field Experiments 00750, The Field Experiments Website.
    9. Xiangyu Wang & Min Zhang & Weiguo Fan & Kang Zhao, 2022. "Understanding the spread of COVID‐19 misinformation on social media: The effects of topics and a political leader's nudge," Journal of the Association for Information Science & Technology, Association for Information Science & Technology, vol. 73(5), pages 726-737, May.
    10. Matej Lorko & Tomas Miklanek & Maros Servatka, 2024. "Why do some nudges work and others not?," CERGE-EI Working Papers wp777, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

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    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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