Working Paper: NBER ID: w27666
Authors: Justin E. Holz; John A. List; Alejandro Zentner; Marvin Cardoza; Joaquin 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.
Keywords: tax compliance; nudges; natural field experiment; behavioral economics; Dominican Republic
JEL Codes: C93; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nudges (D91) | tax compliance (H26) |
| public disclosure message (E60) | taxes paid by firms (H32) |
| prison message (K14) | tax compliance (H26) |
| nudges (D91) | propensity to declare non-exempt taxable income (H26) |
| firm size (L25) | effectiveness of deterrence messages (K42) |
| commission framing + prison message (K14) | tax compliance (H26) |
| commission framing + public disclosure message (M38) | tax compliance (H26) |
| overall increase in tax compliance (H26) | new income (E25) |