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Jan-Emmanuel De Neve (University College London)

Eliciting Taxpayer Preferences Increases Tax Compliance: Experimental Evidence

Two experiments show that eliciting taxpayer preferences on government spending -- providing tax 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 tax 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 US government $385 billion annually, providing tax 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.

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