Improving Tax Compliance without Increasing Revenue

Abstract

This paper studies the impact of “nudges” on taxpayers with varying tax compliance histories in Papua New Guinea. It presents the results from two population-wide randomized controlled trials in a setting that is characterized by low compliance rates and a lack of effective enforcement. The study tests the impact of text messages, flyers, and emails that remind taxpayers of declaration due dates and provide information about the public benefits of paying tax. The findings show that the treatments increased the number of tax declarations filed without increasing the amount of tax paid because the taxpayers who responded to the nudges were largely exempt from paying tax. This result is consistent across tax types, communication channels, and time periods. The findings also show that the treatments had no impact on previously non-filing taxpayers. Collectively, the results illustrate that taxpayers who face the lowest cost from complying are the most likely to respond to a nudge.