Publication: Promoting Tax Compliance in Kosovo with Behavioral Insights
Loading...
Date
2019-03-01
ISSN
Published
2019-03-01
Author(s)
Editor(s)
Abstract
As in many countries, tax collection is a development challenge in Kosovo. Kosovo is one of the poorest and youngest countries in Europe in terms of gross domestic product (GDP) per capita and both demographics and statehood. The lack of an independent monetary policy — given that Kosovo has adopted the euro as the national currency — means that ensuring the sustainability of fiscal policy is critical. However, limited tax revenues hamper the government's ability to address economic cycles. Between 2011 and 2017, total government revenue amounted to about 14 percent of GDP, below the average of 19 percent among countries in Europe and Central Asia. Unlike other countries, Kosovar government relies on taxes for more than 85 percent of its revenues. Mobilizing tax revenues is therefore critical. The Tax Administration of Kosovo (TAK) requested assistance from the World Bank and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) to address this challenge using an evidence-based approach. To this end, the World Bank and GIZ applied behavioral insights to promote tax compliance among specific groups of taxpayers. Three experiments were designed, implemented, and evaluated in 2018 that involved sending behaviorally informed reminders using letters, e-mails, and short messaging service (SMS) messages to various groups of taxpayers to induce timely and honest declarations and payments. The short-term objective of these trials was to increase the number and timeliness of tax declarations. Simple, behaviorally designed messages were effective in inducing tax declaration. Messages helped raise the tax declaration rate by an average of around 3 percentage points during a period of between four and six weeks. Among personal income tax (PIT) declarations, this represents a 59 percent increase in compliance, equivalent to over 200 more annual tax declarations among participants. The likelihood of payment rose in many instances, and no significant difference was found in the amounts of taxes paid. Lessons from the tax experiments in Kosovo highlight the benefits of rigorous impact evaluation and the need to establish processes that help integrate tax collection functions and data systems.
Link to Data Set
Citation
“Karver, Jonathan; Hernandez, Marco; Negre, Mario; Perng, Julie. 2019. Promoting Tax Compliance in Kosovo with Behavioral Insights. © World Bank. http://hdl.handle.net/10986/31357 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Behavioral Interventions in Tax Compliance(World Bank, Washington, DC, 2016-06)This paper presents results from a large (43,387) nationwide randomized controlled trial in Guatemala that used reminders to promote tax compliance. The trial varied the letter received by taxpayers (individuals and firms) who had failed to pay their income tax for the 2013 tax year. Taxpayers were randomly allocated to receive either no letter, the letter originally used by the Guatemalan Tax Authority, or four letter variants adapted using behavioral design. The study finds that although all letters increased the rate of declaration, only two of the letters were successful at increasing the rate of payment and the average amount paid per letter received. The best performing treatments were a deterrent message framing non-declaration as an intentional and deliberate choice, rather than oversight (designed to overcome status quo bias), and a social norms message that referred to the 64.5 percent of taxpayers that had already paid this tax (join the status quo). These two interventions increased the rate of payment as well as the average amount paid conditional on paying, overall more than tripling tax receipts. The paper estimates that if sent to all taxpayers in the sample, in 11 weeks the social norms letter would have generated additional tax revenues of approximately US$760,000, which is 36 times the cost of sending the letters. The effects are persistent and remain at 12 month follow up, suggesting the letters are effective in increasing revenue for the tax authority rather than just bringing tax receipts forward.Publication Taxation, Information, and Withholding(World Bank, Washington, DC, 2016-03)This paper studies tax withholding on business sales, a widely used compliance mechanism which is largely ignored by public finance theory. The study introduces a withholding scheme, whereby the payer in a transaction collects tax from the payee, in a standard evasion model. If the taxpayer can fully reclaim the tax withheld, withholding is irrelevant to her evasion decision. If reclaim is costly, however, withholding establishes a compliance default. To show this empirically, the analysis exploits a ten-year panel of registration, income tax and sales tax records from 400,000 firms in Costa Rica, and over 20 million third-party information and withholding reports. The paper first documents the anatomy of compliance, providing novel measures of compliance gaps on the extensive, intensive and payment margins. It then shows that interventions leveraging the existing third-party information reduce these compliance gaps only marginally. Coverage by a withholding scheme, in contrast, is correlated with higher reported taxable income both across firms and within firms across time. Quasi-experimental estimations show that a doubling of the withholding rate leads to a 40 percent increase in tax payment among treated firms and a 10 percent increase in aggregate revenue. The mechanisms are incomplete reclaim of the tax withheld and reduced misreporting.Publication Applying Behavioral Insights to Improve Tax Collection(World Bank, Washington, DC, 2017-06-01)Mobilizing domestic revenues efficiently is a priority for the Government of Poland, but it is not easy. There are numerous instruments that can be used to achieve this objective. Traditional measures to boost government revenues include changes to the tax legislation and reforms in the area of tax administration. Such measures can have a large fiscal impact, but are often politically challenging to design and negotiate, and can take time to implement. Behavioral interventions often focus on adapting existing systems and processes and can thus be implemented relatively quickly and at a low cost. Overall, they are an additional tool in the policy toolkit that country authorities have to improve tax compliance, and thus complement but do not substitute traditional measures to establish effective tax collection systems including changes in tax legislations and tax administration reforms. Behavioral interventions can also help the Tax Authority to align its strategy more accurately to taxpayer behavior. The Polish authorities were interested in applying insights from behavioral economics to their communications with taxpayers to see if making small changes could promote tax compliance. This paper summarizes the results of a randomized controlled trial (RCT) that used letters to remind taxpayers in Poland to pay their taxes. These taxpayers had declared their personal income tax (PIT) for the 2015 fiscal year but had failed to pay what they owed by the deadline, April 30, 2016 (i.e., taxpayers in arrears). The trial took place between May and August 2016 and covered a total of 149,925 individual taxpayers.Publication Can Electronic Tax Invoicing Improve Tax Compliance?(World Bank, Washington, DC, 2016-03)This paper reviews the Republic of Korea's experience with electronic tax invoices for its value-added tax regime from the perspectives of tax policy makers and administrators. The paper evaluates Korea's implementation of electronic tax invoicing and analyzes its effect on tax compliance through enhanced transparency of business transactions and taxpayer services. First implemented in 2011, mandatory electronic tax invoicing has been credited with lowering tax compliance costs and raising the transparency of business transactions. Effective policy design and implementation have contributed to the country's success with electronic tax invoicing. Measured in transaction value, the electronic tax invoice adoption rate reached 99.8 percent in the first year and rose to 99.9 percent by 2013, compared with 15 percent before electronic tax invoicing became mandatory. According to a survey of taxpayers and tax practitioners in Korea that was conducted as part of this research study, 69.4 percent of the respondents agreed or strongly agreed that mandatory electronic tax invoicing has contributed to curbing value-added tax evasion by raising transaction transparency, and 72.9 percent agreed or strongly agreed that it has improved taxpayer service by facilitating the convenience of tax filing or automating the issuance of invoices. The review of Korea's experiences gives credence to the contention that well-planned and well-executed compulsory electronic tax invoices can materially enhance tax compliance through significant institutional and perceptual changes in tax administration.Publication Behavioral Insights for Tax Compliance(World Bank, Washington, DC, 2019-12-01)This brief provides evidence from World Bank field experiments that consider the social, psychological, and economic factors influencing taxpayer decision-making. Complementary studies from Costa Rica, Guatemala, Poland, Latvia, and Kosovo demonstrate how context-specific, behaviorally informed messaging can offer an immediate, low-cost solution to bureaucratic and technological barriers.
Users also downloaded
Showing related downloaded files
Publication World Development Report 2006(Washington, DC, 2005)This year’s Word Development Report (WDR), the twenty-eighth, looks at the role of equity in the development process. It defines equity in terms of two basic principles. The first is equal opportunities: that a person’s chances in life should be determined by his or her talents and efforts, rather than by pre-determined circumstances such as race, gender, social or family background. The second principle is the avoidance of extreme deprivation in outcomes, particularly in health, education and consumption levels. This principle thus includes the objective of poverty reduction. The report’s main message is that, in the long run, the pursuit of equity and the pursuit of economic prosperity are complementary. In addition to detailed chapters exploring these and related issues, the Report contains selected data from the World Development Indicators 2005‹an appendix of economic and social data for over 200 countries. This Report offers practical insights for policymakers, executives, scholars, and all those with an interest in economic development.Publication Argentina Country Climate and Development Report(World Bank, Washington, DC, 2022-11)The Argentina Country Climate and Development Report (CCDR) explores opportunities and identifies trade-offs for aligning Argentina’s growth and poverty reduction policies with its commitments on, and its ability to withstand, climate change. It assesses how the country can: reduce its vulnerability to climate shocks through targeted public and private investments and adequation of social protection. The report also shows how Argentina can seize the benefits of a global decarbonization path to sustain a more robust economic growth through further development of Argentina’s potential for renewable energy, energy efficiency actions, the lithium value chain, as well as climate-smart agriculture (and land use) options. Given Argentina’s context, this CCDR focuses on win-win policies and investments, which have large co-benefits or can contribute to raising the country’s growth while helping to adapt the economy, also considering how human capital actions can accompany a just transition.Publication Lebanon Economic Monitor, Fall 2022(Washington, DC, 2022-11)The economy continues to contract, albeit at a somewhat slower pace. Public finances improved in 2021, but only because spending collapsed faster than revenue generation. Testament to the continued atrophy of Lebanon’s economy, the Lebanese Pound continues to depreciate sharply. The sharp deterioration in the currency continues to drive surging inflation, in triple digits since July 2020, impacting the poor and vulnerable the most. An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and much needed reforms; this includes prior actions as part of the April 2022 International Monetary Fund (IMF) staff-level agreement (SLA). Divergent views among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform agenda. Lebanon needs to urgently adopt a domestic, equitable, and comprehensive solution that is predicated on: (i) addressing upfront the balance sheet impairments, (ii) restoring liquidity, and (iii) adhering to sound global practices of bail-in solutions based on a hierarchy of creditors (starting with banks’ shareholders) that protects small depositors.Publication Classroom Assessment to Support Foundational Literacy(Washington, DC: World Bank, 2025-03-21)This document focuses primarily on how classroom assessment activities can measure students’ literacy skills as they progress along a learning trajectory towards reading fluently and with comprehension by the end of primary school grades. The document addresses considerations regarding the design and implementation of early grade reading classroom assessment, provides examples of assessment activities from a variety of countries and contexts, and discusses the importance of incorporating classroom assessment practices into teacher training and professional development opportunities for teachers. The structure of the document is as follows. The first section presents definitions and addresses basic questions on classroom assessment. Section 2 covers the intersection between assessment and early grade reading by discussing how learning assessment can measure early grade reading skills following the reading learning trajectory. Section 3 compares some of the most common early grade literacy assessment tools with respect to the early grade reading skills and developmental phases. Section 4 of the document addresses teacher training considerations in developing, scoring, and using early grade reading assessment. Additional issues in assessing reading skills in the classroom and using assessment results to improve teaching and learning are reviewed in section 5. Throughout the document, country cases are presented to demonstrate how assessment activities can be implemented in the classroom in different contexts.Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.