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Transforming the City Council-taxpayer relationship through Behavioural Sciences

In this project, São Paulo City Hall tested and evaluated the reformulation of collection instruments taking into account behavioral aspects. Currently the relationship between the City Hall and taxpayers is based on repressive inspections, difficult to understand communications and complex flows of payments.  With the reformulation of how the IPTU is collected, this increased the municipal tax collection by R $ 60 million/ year. Further experiments have allowed for the estimation that an increase of around R$46 million per year in ISS tax collection could be achieved.

Innovation Summary

Innovation Overview

The Behavioral Sciences Program was created in 2018 with the aim of promoting improvements in municipal services based on evidence from empirical testing and experimentation on how people make decisions in public policies and municipal services. The Program is coordinated by (011).lab, the Government Innovation Laboratory of the City of São Paulo, working in partnership with other secretariats whose policies can be improved from the application of concepts from behavioral sciences. One of the projects already completed by the Program was the reduction of the Urban Territorial Tax (IPTU - Imposto Territorial Urbano) defaults by modifying the notification notice prior to entry into the Municipal Informative Cadastre (CADIN). This project was carried out in partnership with the Municipal Treasury Department (SF), began in June 2018 and the implementation of the reformulated charter took place in August 2021. The project is part of an agenda for transforming the relationship between the City Hall and the taxpayers. Currently, this relationship is based on repressive inspections, difficult-to-understand communications and complex payment flows.

To face these challenges, (011).lab has been designing and testing improvements in collection instruments aiming at a relationship based on the taxpayer's tax compliance behavioral profile. In addition to the project to improve the IPTU, that has been tested and implemented, the project to revise the ISS tax collection letters (tax on services) is in progress. IPTU is issued annually and charged through letters sent to the taxpayer's property. The taxpayer has the option of making the payment in a single installment, obtaining a 3% discount on the amount, or paying the tax amount in 2 to 10 installments. In 2017, IPTU revenues amounted to approximately R$ 13 billion, which represents one third of the total collection of the municipality of São Paulo. Of this amount, 12.67% of taxpayers did not pay the IPTU on time, leading to a non-collection of approximately R$ 1.7 billion for the municipality. Thus, recovering this value through communicating with the citizen is a priority for the SF. If any of the installments (whether fractional or single) is not paid on time, the taxpayer receives a letter by mail - the CADIN statement, notifying that, if the situation is not regularized within 30 days, they will be enrolled in this register. This communication presents data on the amount owed, instructions on how to make the payment, and information on possible problems in the registration of the property. Despite the announcement, just under half of the debtors regularize their situation within the deadline. As a result, taxpayers enrolled in CADIN are prevented from receiving aid or tax incentives and from carrying out any business with the City Hall. The records go to the Active Debt and are subject to a future lawsuit and seizure of the property. In addition, late payment is increased with daily interest.

At first glance, the payment process looks simple. However, surveys carried out with employees and citizens at the SF Service Center report a high frequency of doubts and difficulties in the payment process. These facts indicated that there would be room for improvement in the statement. Empirical works and theoretical models that could explain non-compliance were sought. Based on the investigation of behavioral barriers, we designed new versions of the tax collection letter, which were then randomly sent to taxpayers. A standard letter was made, which reorganized and suppressed information and simplified the language used. From this version, different behavioral principles were applied to understand what would work best in the context of the city of São Paulo. That is, which card would bring a higher debt settlement rate. The following behavioral principles were used: social norm, deliberate choice, salience of consequences, visual illustration. There were then 5 treatment cards and 1 control card (original). Notices were sent to 12,310 taxpayers, totaling 25,000 letters. Payment was tracked within 30 days of receipt of the letter. After correcting for multiple comparisons, only the Salience of Consequences card showed a positive and statistically significant result. It was able to increase the regularization rate by 4.1 percentage points over the control group's rate of 48.5% (an increase of 8.4%). The pilot project alone, which cost approximately R$50,000, was able to raise R$950,000 for municipal coffers. Demonstrating the high cost-effectiveness of the project. Finally, an increase in revenue of around R$ 60 million/year was estimated for the São Paulo City Hall if the Saliência das Consequences letter were implemented as the standard letter. In August 2021, this letter was implemented by SF as an official IPTU collection letter.

Innovation Description

What Makes Your Project Innovative?

The application of behavioral sciences in the Fazendarian area is an innovation because

  1. It employs a new theme in the Brazilian context. In the literature review that supported the project, there were few similar initiatives carried out outside developed countries.
  2. It applies a robust and rigorous methodology for causal analysis. It is possible to prove the impact of the proposed new prototype.
  3. It contributes to the culture of evidence-based public policies, experimentation and innovation in the public sector. The result of IPTU experimentation opens the door to other more challenging and risky projects. The city of São Paulo has become a reference for Brazil, having projects replicated by other entities.
  4. It transforms the tax-taxpayer relationship taking into account the payment profile of the citizen from the tax compliance behavior.

Innovation Development

Collaborations & Partnerships

  • Government: partnership between two departments, Secretary of Finance and Secretariat of Innovation and Technology.
  • Citizens: directly interviewed in the Plaza de Atendimento of the Secretary of Finance, allowing them to share their pains and difficulties with the process of payment of the IPTU debt. Indirectly, they also contributed at the time of the test.
  • UNESCO: contributed funds for hiring the data analysis and causal inference team.

Users, Stakeholders & Beneficiaries

  • Citizen: the reformulated letter helps the citizen to pay his tax on time, reducing interest costs and problems arising from default.
  • Public servant: the reformulated letter reduces doubts in face-to-face attendances. They also acquired knowledge of behavioral strategies and use of evidence for future projects.
  • Government: the reformulated letter increases the government’s revenue, allowing the expansion of investments. It also reduces rework in inefficient billing strategies.

Innovation Reflections

Results, Outcomes & Impacts

The innovation brought short, medium and long term results. In the short term, the pilot test alone was able to increase the collection by R$ 950 thousand. In the medium term, the impact calculations of the implementation of the most effective letter on a large scale indicated an increase in revenue of R$ 60 million. Changes to the IPTU collection letter improve the service for all city taxpayers, providing clearer, simpler and more assertive communication. In the long term, the project contributes to the creation of a culture of innovation, experimentation and application of behavioral sciences in the Treasury Department. In addition, the project composes a broad strategy of reformulation of the tax-taxpayer relationship through the Tax Compliance Program, which currently focuses on the review of the ISS (service tax) collection instruments with an estimated collection of R$46 million/year.

Challenges and Failures

The first challenge faced was convincing SF of the use of a new methodology in the public sector - behavioral sciences. O (011). lab presented the proposal, methodology and implementation capacity, but the institution who held the competence for implementing the challenge was the SF. In this sense, the support of the high echelon was fundamental to the project. Another major challenge was tax secrecy: it was not possible to have access to taxpayers' information. Thus, a randomization algorithm was created that worked at a distance and could be coupled to the system used by SF. For the analysis of the results a room of secrecy was created. The closest follow-up for implementation was an identified flaw in project governance. For example, (011). lab did not make a very close and persuasive follow-up of the implementation and the use of the most effective letter took long to happen. This was a learning experience for future projects: the implementation became part of the project cycle we developed.

Conditions for Success

It is possible to separate the main conditions for success into two groups: political and technical. On the political side, it is very important that the high echelons believe in and support the project. Experimentation, testing and the possibility of error often frighten the middle management, who are afraid of punishments for errors. If the secretary supports the project, the executors will implement it. The conviction of the high echelon is to show that the risks are small compared to the expected gain. This was done by presenting evidence of similar projects carried out in other contexts. On the technical side, the existence of and access to data and people qualified in causal analysis and behavioral sciences was fundamental. In order not to violate the data protection law, access to data was limited; a confidentiality room was created to analyze the results. The behavioral science team was (011).lab. The causal analysis team only existed because of a partnership between the laboratory and UNESCO.


(011). lab has as one of the pillars the replicability of its projects. Thus, the methodology used for the reformulation of the IPTU collection letters was systematized in a technical notebook by CopiCola, the laboratory knowledge management program. The goal is that the notebook can be a guide for other government entities to copy innovative projects (a link to it can be found under the year of implementation). Due to the existence of this material, innovation has already been replicated by other prefectures in Brazil, such as Niterói (state of Rio de Janeiro). This contributed to the spread of innovation in the Brazilian public sector, and the adoption of evidence-based public policies elsewhere in the country. The systematization of the knowledge of this project helps (011). lab to follow in its agenda of behavioral sciences applied to the Fazendarian area, such as the initiative to reformulate the ISS collection instruments.

Lessons Learned

The main lesson learned is to start with projects at hand, with high probability of having positive results and employing a robust methodology that allows making causal inference. The decision to do the project with the letters of collection of property tax is due to the fact that there were examples of similar projects in the literature and in other governments around the world. The vast majority of projects had positive results. So it was easier to convince the problem owners that it was possible to risk to innovate. And that’s what happened. As the result of this project was extremely positive (potential impact of R$ 60 million in annual revenue), the relationship between (011). lab and the Secretary of Finance narrowed, allowing to think of new projects that are more challenging and risky, such as the reformulation of the ISS collection instruments.

Supporting Videos

Year: 2021
Level of Government: Local government


  • Diffusing Lessons - using what was learnt to inform other projects and understanding how the innovation can be applied in other ways

Innovation provided by:

Date Published:

23 November 2023

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