Working Paper | HBS Working Paper Series | 2014

Eliciting Taxpayer Preferences Increases Tax Compliance

by Cait Lamberton, Jan-Emmanuel De Neve and Michael I. Norton

Abstract

Two experiments show that eliciting taxpayer preferences on government spending―providing taxpayer agency―increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a "lab tax." Allowing a treatment group to express non-binding preferences over tax spending priorities leads to a 16% increase in tax compliance. A follow-up online study tests this treatment with a simulation of paying US federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending results in a 15% reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the U.S. government $385 billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way "nudge," transforming tax payment from a passive experience to a channel of communication between taxpayers and government.

Keywords: Motivation and Incentives; Taxation; Public Administration Industry; United States;

Citation:

Lamberton, Cait, Jan-Emmanuel De Neve, and Michael I. Norton. "Eliciting Taxpayer Preferences Increases Tax Compliance." Harvard Business School Working Paper, No. 14-106, April 2014.