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

Author

Listed:
  • Ugo Troiano

    (University of Michigan)

  • Ricardo Perez-Truglia

    (Microsoft)

Abstract

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.

Suggested Citation

  • Ugo Troiano & Ricardo Perez-Truglia, 2015. "Tax Debt Enforcement: Theory and Evidence from a Field Experiment in the United States," 2015 Meeting Papers 134, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:134
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    File URL: https://economicdynamics.org/meetpapers/2015/paper_134.pdf
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    References listed on IDEAS

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    Cited by:

    1. Michael Chirico & Robert P. Inman & Charles Loeffler & John MacDonald & Holger Sieg, 2016. "An Experimental Evaluation of Notification Strategies to Increase Property Tax Compliance: Free-Riding in the City of Brotherly Love," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 129-161.
    2. Bogdan Genchev & Julie Holland Mortimer, 2016. "Empirical Evidence on Conditional Pricing Practices," Boston College Working Papers in Economics 908, Boston College Department of Economics.
    3. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    4. Hong Luo & Julie Holland Mortimer, 2016. "Copyright Enforcement: Evidence from Two Field Experiments," NBER Working Papers 22082, National Bureau of Economic Research, Inc.
    5. Michael Chirico & Robert P. Inman & Charles Loeffler & John MacDonald & Holger Sieg, 2014. "An Experimental Evaluation of Notification Strategies to Increase Property Tax Compliance: Free-Riding in the City of Brotherly Love," NBER Chapters,in: Tax Policy and the Economy, Volume 30, pages 129-161 National Bureau of Economic Research, Inc.
    6. Michael Chirico & Robert Inman & Charles Loeffler & John MacDonald & Holger Sieg, 2016. "Deterring Delinquency: A Field Experiment in Improving Tax Compliance Behavior," Natural Field Experiments 00543, The Field Experiments Website.

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