Affecting trust and compliance through communication

Evidence from research

• Simple letters and reminders can affect voluntary compliance…
• …but like audits, they may also backfire with already compliant taxpayers
• Descriptions of tax authorities’ power and trustworthiness in brochures or news media can have behavioural effects
• Mass media campaigns may improve both intended and actual compliance

There is abundant evidence that taxpayers’ compliance behaviour can be affected directly through communication initiatives by the tax authority. Several factors can affect behaviour when emphasized in communication, including risk and consequences of detection, tax morale, fairness, reciprocity and the benefits for society of being compliant. At the same time, research shows that for such interventions to have the desired effect, the details of their design are crucial.

Simple letters and reminders can affect voluntary compliance…

In a study of the impact of simplification, deterrence and tax morale as content elements in letters on tax compliance, De Neve et al. (2020) show that simplifying communication substantially increases compliance. Through a series of natural field experiments, they demonstrate, among other things, that simplified tax filing reminders increase subsequent tax filing by 8% (relative to the standard reminder). For late taxpayers, the simplified reminder increases subsequent tax payment by as much as 23%. The authors conclude that simplification is far more cost-effective than standard enforcement measures, yielding a potential for substantial reductions in enforcement costs. Bott et al. (2020) also experiments with varying the content of letters to taxpayers to study the drivers of tax compliance with special emphasis on the role of tax morale. They conduct a large-scale randomized field experiment based on a sample of more than 15,000 taxpayers in Norway who were likely to have misreported their foreign income. The study shows that both moral suasion (arguments evoking tax morale) and perceived detection probability affect taxpayer behavior: While the moral letter mainly works in depth (the degree of the responding taxpayer’s change in behaviour), the detection letter works in breadth (the number of taxpayers who change behaviour). Two natural field experiments conducted by Biddle, Fels & Sinning (2018) in collaboration with the Australian Taxation Office (ATO) suggests that businesses are responsive to certain types of nudges. The authors find that changing the phone script of desk auditors and simplifying the subsequent follow-up letter reduced the proportion of default assessments raised by the ATO by an impressive 69 percent. Including social norm messages in standard reminder letters may also increase voluntary compliance. Hallsworth et al. (2017) demonstrate this via two large-scale natural field experiments using administrative data from 200.000 taxpayers in the UK, all of whom had to file self-assessment tax returns. The study shows that the framing of information increases payment rates for overdue tax up to 70 days after the intervention, indicating that incorporating moral costs (relating to social norms, public services and/or moral duty) into taxpayer communication can influence voluntary compliance at low economic cost to the tax authority.

…but like audits, they may also backfire with already compliant taxpayers

Castro & Scartascini (2015) conducts a field experiment in a municipality in Argentina targeting property tax taxpayers’ beliefs regarding the levels of enforcement, reciprocity, and peer-effects of the tax system. Taxpayers who received the deterrence message were almost 5 percentage points more likely to comply compared to the control group. The reciprocity and peer-effects messages also increased the probability of compliance for some taxpayers, but those who actually complied in the past tended to react negatively to information about other people’s compliance levels. This shows that not only “harder” instruments (e.g., audits – see research related to guideline #4) but also “softer” approaches such as peer-effect nudging can backfire with intrinsically motivated, compliant taxpayers.

Descriptions of tax authorities’ power and trustworthiness in brochures or news media can have behavioural effects

Through a series of experiments, Hartl et al. (2015) investigate whether tax evasion is influenced by the mere description of an authority wielding coercive power, legitimate power, and coercive and legitimate power combined. The study shows that participants’ beliefs regarding tax authority’s power significantly shape compliance decisions – a result that holds both for coercive and legitimate power and for the two types combined. On the other hand, objective information about fine rates had no effect. Thus, the study indicates that descriptions of the tax authority —for example in information brochures and media reports— can actually affect tax compliance via taxpayers’ beliefs. In a similar vein, Kasper, Kogler & Kirchler (2015) examines how descriptions of tax authorities’ attributes of trust and power featured in the media affects intended tax compliance. Conducting a survey-based experiment where participants are exposed to real excerpts from newspaper coverage on tax issues, the authors find that both trust and power attributes affects compliance intentions. By using actual newspaper excerpts about a real tax authority (the Austrian) instead of fictitious information about a fictitious tax authority, this experiment improves on the external validity compared to many other experiments and thus strengthens the evidence of the relationship between trust, power and compliance.

Mass media campaigns may improve both intended and actual compliance

Cyan, Koumpias, Martinez-Vazquez (2017) investigates the effects of mass media campaigns on individual attitudes towards tax compliance using survey data from Pakistan. Specifically, the study examines the effectiveness of campaigns in the TV and national newspapers used by the Federal Board of Revenue (FBR) of Pakistan to increase awareness, tax filing, and, ultimately, tax morale. Survey data was collected in 2014 immediately after these mass media campaigns by the FBR. The authors find improved perceptions towards tax compliance for respondents exposed to both the TV and the newspaper advertisements. Perhaps surprisingly, newspaper ads were more effective, so the choice of media platform can be important. In a related study, Koumpias & Martinez-Vazquez (2019) examines the effect of mass media campaigns on income tax filing based on survey data collected on tax eligible individuals soon after the filing deadline. They find that exposure to newspaper ads providing information on tax eligibility increased income tax filing, while ads informing about the tax filing deadline or the financial penalties of not filing —interestingly— had no effect. TV ads using moral suasion and portraying self-employed taxpayers improved tax filing among the self-employed but not among the broader survey population. Like the study by Hallsworth et al. (2017), this demonstrates that the behaviour of self-employed taxpayers —who are important in terms of compliance because they have real opportunities to evade (see Kleven et al. 2011)— can be affected by tax authorities via other means than audits.