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The effects of penalty information on tax compliance: evidence from a New Zealand field experiment

Author

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  • Norman Gemmell

    (School of Social and Cultural Studies, Victoria University, Wellington - School of Social and Cultural Studies, Victoria University, Wellington)

  • Marisa Ratto

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres)

Abstract

The ‘standard' Allingham-Sandmo-Yitzhaki (ASY) model of tax evasion predicts effects oncompliance which depend on the perceived probability of detection, tax rate and penalty forevasion. Compliance effects of detection probabilities and tax rates have been extensively testedempirically, but penalty effects are rarely tested explicitly. This paper examines the effects of latepayment penalties on tax compliance based on an experiment involving New Zealand goods andservice tax (GST) ‘late payers'. Firstly, based on an ASY-type model of tax late payments in whichthe probability of enforcement, rather than detection, is central, we develop a number of testablehypotheses. Secondly, based on a field experiment involving a specific compliance intervention, weexamine how taxpayers respond when given different penalty information. The experiment alsoallows us to consider differences between taxpayers' stated intentions to comply and subsequentlyobserved compliance. Results suggest that differences in penalty information given to taxpayersand reductions in penalty rates both affect taxpayers stated intentions to comply (pay overdue taxand penalties) as predicted. However, subsequently observed responses generally appearunresponsive to penalties. Nevertheless, various individual taxpayer characteristics are identifiablethat affect both compliance intentions and actual behaviour.

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  • Norman Gemmell & Marisa Ratto, 2019. "The effects of penalty information on tax compliance: evidence from a New Zealand field experiment," Working Papers hal-02302534, HAL.
    • Handle: RePEc:hal:wpaper:hal-02302534
    Note: View the original document on HAL open archive server: https://hal.science/hal-02302534
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    4. Cinzia Castiglioni & Edoardo Lozza & Eric Dijk & Wilco W. Dijk, 2019. "Two sides of the same coin? An investigation of the effects of frames on tax compliance and charitable giving," Palgrave Communications, Palgrave Macmillan, vol. 5(1), pages 1-10, December.
    5. Castro, Juan Francisco & Velásquez, Daniel & Beltrán, Arlette & Yamada, Gustavo, 2020. "Spillovers and Long-Run Effects of Messages on Tax Compliance: Experimental Evidence from Peru," IZA Discussion Papers 13974, Institute of Labor Economics (IZA).
    6. Skov, Peer Ebbesen, 2023. "The effect of late payment penalties on the payment timing of owed taxes," Economics Letters, Elsevier, vol. 229(C).
    7. Sloboda, Matúš & Pavlovský, Patrik & Sičáková-Beblavá, Emília, 2024. "Simplify and Deter: Nudging waste collection fee debtors," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 111(C).

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    Keywords

    Tax evasion; late payment penalties; tax experiment; goods and service tax;
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