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

Author

Listed:
  • Marvin Cardoza
  • Justin Holz
  • John List
  • Joaquin Zentner
  • Alejandro Zentner

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

  • Marvin Cardoza & Justin Holz & John List & Joaquin Zentner & Alejandro Zentner, 2020. "The $100 Million Nudge: Increasing Tax Compliance of Businesses and the Self-Employed using a Natural Field Experiment," Natural Field Experiments 00712, The Field Experiments Website.
  • Handle: RePEc:feb:natura:00712
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    References listed on IDEAS

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    1. Leonardo Bursztyn & Robert Jensen, 2017. "Social Image and Economic Behavior in the Field: Identifying, Understanding, and Shaping Social Pressure," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 131-153, September.
    2. De Neve, Jan-Emmanuel & Imbert, Clement & Spinnewijn, Johannes & Tsankova, Teodora & Luts, Maarten, 2019. "How to Improve Tax Compliance? Evidence from Population-wide Experiments in Belgium," The Warwick Economics Research Paper Series (TWERPS) 1194, University of Warwick, Department of Economics.
    3. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2016. "Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries," Economica, London School of Economics and Political Science, vol. 83(330), pages 219-246, April.
    4. Blumenthal, Marsha & Christian, Charles W. & Slemrod, Joel, 2001. "Do Normative Appeals Affect Tax Compliance? Evidence from a Controlled Experiment in Minnesota," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 125-38, March.
    5. Mascagni, Giulia & Nell, Christopher & Monkam, Nara, 2017. "One Size Does Not Fit All: A Field Experiment on the Drivers of Tax Compliance and Delivery Methods in Rwanda," Working Papers 12838, Institute of Development Studies, International Centre for Tax and Development.
    6. Blumenthal, Marsha & Christian, Charles W. & Slemrod, Joel, 2001. "Do Normative Appeals Affect Tax Compliance? Evidence From a Controlled Experiment in Minnesota," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(1), pages 125-138, March.
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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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