Working Paper: NBER ID: w31210
Authors: Patricia Gil; Justin E. Holz; John A. List; Andrew Simon; Alejandro Zentner
Abstract: In modern economies, when debt and trust issues arise, a partial forgiveness policy is often the solution to induce payment and increase disclosure. For their part, governments around the globe continue to use tax amnesties as a strategy to allow debtors to make amends for past misdeeds in exchange for partial debt forgiveness. While ubiquitous, much remains unknown about the basic facts of how well amnesties work, for whom, and why. We present a simple theoretical construct that provides both economic clarity into tax amnesties as well as insights into the necessary behavioral parameters that one must estimate to understand the consequences of tax amnesties. We partner with the Dominican Republic Tax Authorities to design a natural field experiment that is linked to the theory to estimate key causal mechanisms. Empirical results from our field experiment, which covers 125,452 taxpayers who collectively owe $5.2 billion (5.5% of GDP) in known debt, highlight the import of deterrence laws, beliefs about future amnesties, and tax morale for debt payment and increased disclosure. Importantly, we find large short run effects: our most effective treatment (deterrence) increased payments of known debt by 25% and hidden debt by 48%. Further, we find no evidence of our intervention backfiring on subsequent tax payments.
Keywords: Tax Amnesties; Natural Field Experiment; Tax Compliance; Deterrence; Tax Morale
JEL Codes: C93; H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deterrence message (K42) | Payments of known debt (H63) |
| Deterrence message (K42) | Payments of hidden debt (H63) |
| Overall intervention (C90) | Total payments (J33) |
| Overall intervention (C90) | Subsequent tax payments (H22) |