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Designing for Limited Attention During Tax Amnesty Times

General Information

Project description

Tax amnesties, a limited-time opportunity for a specified group of taxpayers to pay a defined amount of tax liabilities, are broadly used across countries because they generate short-term revenue gains. However, evidence suggest that tax amnesties fail to have long-term effects, and in some cases, they generate negative effects on compliance. With the goal of evaluating the impact of tax amnesties, this experiment relies on the behavioral principle of limited attention and redesigns the communication notice sent to taxpayers by the city of Santa Fe, Argentina in order to reduce cognitive effort and increase understanding of the benefits of participating in tax amnesties.

Source: B-Hub

Detailed information

Final report: Is there a final report presenting the results and conclusions of this project?

Yes

Final report

Pre-analysis plan: Is there a pre-analysis plan associated with this registration?

No

Hypothesis

Does redesigning the communication notice sent to taxpayers reduce cognitive effort and increase understanding of the benefits of participating in tax amnesties?

How hypothesis was tested

Two field experiments were run during a tax amnesty period in May 2017 in the city of Santa Fe (Argentina) with more than 54,000 taxpayers who had failed to comply with the payment of their property tax bill (they received the bill but they did not make a payment). The first experiment included taxpayers who owed bills from January 2011 to December 2012 (about 16,000 taxpayers). The second experiment included taxpayers who accumulated debts between January 2013 and March 2017 (about 37,000 taxpayers). The difference in duration of the debt is relevant since debts prescribe after 5 years if the government doesn’t initiate the judicial process, so authorities are likely to direct resources to older debtors and take judicial enforcement steps absent any action by debtors.

In both experiments, standard notices mailed by the government to inform about the tax amnesty opportunity were redesigned to show important information in a more prominent way and reduce information processing or cognitive costs for delinquent taxpayers. Color and other visual techniques were used, as well as an explanation of the different payment plans, including a detailed computation of the reduction in interests that each payment plan provides. The redesigned letter in the first experiment also increased the saliency of a deterrence message that appeared in the original notice to this population. The second experiment included two slightly different versions of the redesigned letter, the only difference being that version B added a column with the computation of interest saved in monetary terms under each plan as opposed to showing just a percentage calculation. Control groups in both experiments received the original notices without redesign.

(Source: B-Hub)

Dependent variables

Probability of taxpayers taking part to the tax amnesty
Amount paid by those taxpayers

Analyses

Comparison with control

Possible spillover effects

Sample Size. How many observations will be collected or what will determine sample size?

More than 54,000 taxpayers

Who is behind the project?

Institution: Inter-American Development Bank (IDB)
Team: IDB Behavioral Economics Group

Project status:

Completed

Methods

Methodology: Experiment, Field Experiment
Could you self-grade the strength of the evidence generated by this study?: 1

What is the project about?

Policy area(s): Administration, Finance, Public governance
Topic(s): Compliance
Behavioural tool(s): Salience

Date published:

25 June 2021

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