A Gentle Push in the Right Direction
Using nudge theory to improve tax compliance in Belgium
One area of research of recent interest for policymakers is 'nudging' and the way it can influence individual behaviour by prompting action through subtle changes to language or the use of imagery. Research conducted by Dr Clement Imbert, in collaboration with colleagues at the University of Oxford and London School of Economics, has explored how using nudges in communication with taxpayers affects their compliance.
Closing the 'tax gap' - the difference between the amount of tax which should be paid and the amount actually paid – is a key aim for governments as it would help them recoup millions of pounds in missing tax revenue. Chasing overdue payments creates extra bureaucracy and incurs additional costs for tax authorities; in order to collect taxes efficiently, agencies need to understand the drivers of compliance and which interventions are cost-effective. To assess the effects of nudges on rates of tax compliance, the research team needed to draw from the largest sample possible, and worked with tax authorities in Belgium as its sample base.
Dr Imbert and his team carried out five nationwide experiments with the Belgian tax authority between 2014 and 2016. The team tested how a series of 16 different nudges in letters to taxpayers affected compliance throughout the tax process. These included:
Modifying the 'Tax on Web' system (an online interface through which people can file taxes)
Shortening letters to reduce information overload, as well as highlighting key information using colour or boxes to attract the reader's attention
A subset of taxpayers received 'deterrence' messages which clearly stated the consequences of non-payment (including penalties and/or enforcement actions)
Adding 'tax morale' messages that stressed the public value of taxes and the duty to file returns and pay on time.
Thanks to the work of Dr Imbert and his team, the Belgian tax authorities have permanently adopted simpler communications with taxpayers. Deterrence messages are now standard, highlighting the penalty of non-compliance, in direct response to the research team’s finding that such messages have a positive impact on tax yields. The Belgian Finance Minister confirmed the benefits of the new approach to the Belgian Parliament and, as a result of the team’s interventions, in 2015 an extra €4m was collected in revenue (€3.16m extra in taxes plus enforcement cost savings of €700,000), with similar outcomes the following year.
The success of these interventions is now informing discussions in countries looking to boost tax compliance in Europe and beyond, with Czech tax authorities developing behavioural trials to improve compliance after consultation with the research team. The project’s findings have been presented to authorities in Bulgaria, Ethiopia, the Netherlands, Poland, Germany, Macedonia, Serbia and Mali.