Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Eliciting Taxpayer Preferences Increases Tax Compliance
    03 Jun 2014Working Paper Summaries

    Eliciting Taxpayer Preferences Increases Tax Compliance

    by Cait Lamberton, Jan-Emmanuel De Neve and Michael I. Norton
    Most citizens dislike paying taxes. In the United States, for example, tax noncompliance is estimated to amount to some $385 billion annually. Many other governments also suffer from a "tax gap" in their national accounts. A meaningful portion of tax aversion can be understood and addressed by considering psychological characteristics of the tax process. To explore this possibility the authors design and carry out a set of experiments that allow taxpayers to express advisory preferences regarding the use of their tax dollars. They then assess the effects of this taxpayer agency treatment on tax compliance as well as satisfaction with tax payment and attitudes towards taxation. Findings show that providing taxpayers with such "taxpayer agency"—giving them a sense of influence over tax spending—significantly increases tax compliance. The authors also observe that agency operates, in part, by bringing together payment and benefit. In addition, agency creates no decrease in tax satisfaction or change in fear of audit, and it may reduce general antitax sentiment among taxpayers. Overall, giving taxpayers a voice may act as a two-way nudge, changing tax payment from a passive experience to a channel of communication between taxpayers and government. Key concepts include:
    • Tax noncompliance is a big problem. Research has shown that standard drivers of compliance (such as enforcement rates) do not fully explain individual tax behavior.
    • A lack of agency or sense of influence over tax spending may lower tax compliance.
    • Individuals are happier to give when they know what they're giving for, and less likely to do so when the outcome of their payment is ill-defined.
    • Tax aversion is due in part to the separation of tax payments and the public goods obtained in return. This disconnect places distance between payment and benefit, and therefore decreases taxpayers' perceptions of the tax-funded benefits they receive.
    LinkedIn
    Email

    Author 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 percent 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 percent 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 US 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.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: April 2014
    • HBS Working Paper Number: 14-106
    • Faculty Unit(s): Marketing
      Trending
        • 28 Mar 2023
        • Research & Ideas

        The FDA’s Speedy Drug Approvals Are Safe: A Win-Win for Patients and Pharma Innovation

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

        • 23 Mar 2023
        • Research & Ideas

        As Climate Fears Mount, More Investors Turn to 'ESG' Funds Despite Few Rules

        • 01 Mar 2023
        • What Do You Think?

        How Much Does 'Deep Purpose' Matter to the Bottom Line?

        • 25 Feb 2019
        • Research & Ideas

        How Gender Stereotypes Kill a Woman’s Self-Confidence

    Michael I. Norton
    Michael I. Norton
    Harold M. Brierley Professor of Business Administration
    Unit Head, Negotiation, Organizations & Markets
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Government and Politics
    • Finance
    • North & Central America
    • United States

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College