Applying Behavioural Science in Tax Administration A ......2017/06/13 · % Behavioural Change...
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Applying Behavioural Science in Tax Administration A Summary of Lesson Learned
June 8 2017
Seán Kennedy Senior EconomistRevenue
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Opinions expressed in this presentation are the views of the author and may not reflect the views of the Office of the Revenue Commissioners. The author alone is responsible for the conclusions.
Structure
PART I – BEHAVIOURAL SCIENCE IN REVENUE1. Our Experience2. Current Research3. Which Insights Drive Behaviour?4. Summary Findings
PART II – FOUR EXPERIMENTS1. Deterrence | Pub Licenses2. Personalisation | Post-it3. Simplification & Salience | Non-Filers 20144. Social Norms | Non-Filers 2016
PART III – LESSONS LEARNED
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Our Experience
Application of psychological insights (using letters) to economics
Endorsement Internationally and in Ireland
In general, many nudges; little measurement. Our approach has been empirically focused (observation leads, theory follows)
Empirical demonstrations are persuasive. Where our trials have shown a positive behavioural change, they have been scaled nationwide
While RCTs are scientific, they are also highly specific and not always feasible
Our experience is that endorsement and logistics are often harder than experimental design
Understanding what does not work important as understanding what does (file drawer problem). One of our most striking results is that our evidence on social norms conflicts with similar trials from the UK (but not from the US)
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Our current research paper summarises lessons from 20 RCTs conducted by Revenue over the past 6 years
Revenue was the first Government Department in Ireland to implement RCTs to test the application of BE. We have now built up a comprehensive picture of taxpayer behaviour in Ireland
Audit (and other interventions) are effective but expensive and time consuming. Could targeted treatments be more efficient in improving compliance (filing, reporting and paying)
Current Research
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Which Insights Drive Behaviour?
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Detterence Personalisation Simplification Social Norms
(5) (2) (8) (5)
+8.0% +4.0% +3.3% -1.6%
1. Deterrence: Strategies dissuade taxpayers from noncompliant behaviour2. Simplification & Salience: Simple presentation and drawing attention to details3. Personalisation: Personalised correspondence may improve behaviours4. Social Norms: The behaviour of others can influence an individuals choice
(19) 35.0%
(20) 6.1%
(7) -1.1%
(8) 6.9%
(4) 10.5%
(14) -2.0%
(18) 23.1%
(10) 6.2%
(13) 5.0%(9) 2.6%(1) 1.0%
(15) -4.0%(11) -4.3%
(16) 2.0% (5) 0.3%
(17) 17.0%
(12) -1.3%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
4 6 8 10 12 14
DeterrenceSimplification & SalienceSocial NormPersonalisation
% Behavioural Change (Mean)Insights
Impact
Larger Sample Size
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Summary Findings, by Trial
8.0%
(5 Trials)
3.3%
(8 Trials)
-1.6%
(5 Trials)
4.0%
(2 Trials)
-3%
-1%
2%
4%
6%
8%
10%
5 7 9 11 13 15
DeterrenceSimplification & SalienceSocial NormPersonalisation
% Behavioural Change (Mean)
Larger Sample Size
Insights
Impact
(19) 35.0%
(20) 6.1%
(7) -1.1%
(8) 6.9%
(4) 10.5%
(14) -2.0%
(18) 23.1%
(10) 6.2%
(13) 5.0%(9) 2.6%(1) 1.0%
(15) -4.0%(11) -4.3%
(16) 2.0% (5) 0.3%
(17) 17.0%
(12) -1.3%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
4 6 8 10 12 14
DeterrenceSimplification & SalienceSocial NormPersonalisation
% Behavioural Change (Mean)Insights
Impact
Larger Sample Size
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Summary Findings, by Trial
Deterrence should positively influence taxpayers (Slemrod, 2007) but empirical evidence seems mixed. Wenzel (2004) finds that when norms in favour of compliance are strong, deterrence effects are small, but they become more important when norms are weak
All Publican’s required to hold excise licence issued by Revenue. Renewal letters to all publicans issue in September
Treatment group (400): Randomly assigned to receive revised letter with deterrence (‘unlicensed trading is an offense’) and social norm (‘majority license holders renew on time’)
Control group (7,800): Remainder received standard renewal letter
Target: Improve renewal rates (and timing)
Deterrence (Pub Licenses)
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
On Time Renewal Rates (1st October): Control 29.4%, Treatment 35.5% At end of licensing year, renewal rates are 97% and 89% respectively While 6% may seem small, it derives from modest changes to a letter
89%
20%
30%
40%
50%
60%
70%
80%
90%
100%
01-Oct-11
01-Nov-11
01-Dec-11
01-Jan-12
01-Feb-12
01-Mar-12
01-Apr-12
01-May-12
01-Jun-12
01-Jul-12
01-Aug-12
01-Sep-12
% Renewing Excise License
Date of Renewal
97%
89%
20%
30%
40%
50%
60%
70%
80%
90%
100%
01-Oct-11
01-Nov-11
01-Dec-11
01-Jan-12
01-Feb-12
01-Mar-12
01-Apr-12
01-May-12
01-Jun-12
01-Jul-12
01-Aug-12
01-Sep-12
% Renewing Excise License
Date of Renewal
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Deterrence (Pub Licenses)
Experimental Design Illustrative Example
SAMPLE 2,026 survey forms issued to
SMEs
TREATMENT300 (15%) received survey form and covering letter with short
personalised handwritten post-it note requesting completion
CONTROL1,726 (85%) received survey form and covering letter only
Dear Joe Bloggs,
Please take a few minutes to complete this for us.
Thank you.
Seán KennedyTax Official
Literature suggests seemingly insignificant post-it leads to much higher responses Five specific personal features included in each note
Personalisation (Post-it)
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
60%
65%
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 61 63 65
Treatment (300) - PersonalisedNote Attached
Control (1726) - No PersonalisedNote Attached
16%
60%
43%
22%
42%
30%
Reminder LettersResponse Rate
Days
Personalisation (Post-it)
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Treatment (300): Response rate is 60% over the period
Response Rates, by Day
Econometric Modelling, by SME taxpayer
Simple OLS (1) regression shows receiving post-it increases response rate by 14.7 percentage points on average
When controls are included, estimate is revised to 13.9
Econometric modelling confirms responses received more quickly
Table 1: OLS, Logit and Probit Estimates of the Effect of Post-it Notes on Survey Responses
All Responses Responses within Four Weeks
OLS (1)
OLS (2)
Logit (1) Probit (1) Logit (2) Probit (2) OLS (3)
Received Post-it 0.147*** 0.139*** 0.139*** 0.139*** 0.175*** 0.176*** 0.176***
(-0.0309) (-0.0314) (-0.0312) (-0.0312) (-0.0298) (-0.0298) (-0.0298)
Controls No Yes Yes Yes Yes Yes Yes
Selected Covariate Estimates
Larger Size
0.003 0.003 0.003 -0.011 -0.011 -0.011
(-0.0278) (-0.0276) (-0.0275) (-0.0233) (-0.0232) (-0.0232)
Manufacturing
0.118* 0.118* 0.119* 0.096 0.095 0.095
(-0.0594) (-0.0592) (-0.0593) (-0.0522) (-0.0524) (-0.0524)
Dublin
-0.072* -0.072* -0.073* -0.04 -0.041 -0.041
(-0.032) (-0.0319) (-0.0319) (-0.0272) (-0.027) (-0.027)
Sole Trader
0.028 0.028 0.028 0.005 0.004 0.004
(-0.0243) (-0.0241) (-0.0241) (-0.0201) (-0.0201) (-0.0201)
Sample size
2,013 2,013 2,013 2,005 2,013 2,005
Table 1: OLS, Logit and Probit Estimates of the Effect of Post-it Notes on Survey Responses
All Responses Responses within Four Weeks
OLS (1)
OLS (2)
Logit (1) Probit (1) Logit (2) Probit (2) OLS (3)
Received Post-it 0.147*** 0.139*** 0.139*** 0.139*** 0.175*** 0.176*** 0.176***
(-0.0309) (-0.0314) (-0.0312) (-0.0312) (-0.0298) (-0.0298) (-0.0298)
Controls No Yes Yes Yes Yes Yes Yes
Selected Covariate Estimates
Larger Size
0.003 0.003 0.003 -0.011 -0.011 -0.011
(-0.0278) (-0.0276) (-0.0275) (-0.0233) (-0.0232) (-0.0232)
Manufacturing
0.118* 0.118* 0.119* 0.096 0.095 0.095
(-0.0594) (-0.0592) (-0.0593) (-0.0522) (-0.0524) (-0.0524)
Dublin
-0.072* -0.072* -0.073* -0.04 -0.041 -0.041
(-0.032) (-0.0319) (-0.0319) (-0.0272) (-0.027) (-0.027)
Sole Trader
0.028 0.028 0.028 0.005 0.004 0.004
(-0.0243) (-0.0241) (-0.0241) (-0.0201) (-0.0201) (-0.0201)
Sample size 2,013 2,013 2,013 2,013 2,005 2,013 2,005
Personalisation (Post-it)
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Simplification (Non-Filers)
Self-assessed Income Tax compliance rate is ~90% annually in Ireland
In 2014, conducted Non-Filers Project to evaluate impact of tailoring letters on the proportions of non-filing Income Tax payers who file a tax return
Previously, policy was to issue automated reminder letter to all non-filers
1. Control Group (79,000): Issued bulk letter in March 20142. Treatment 1 (914): Random assignment to receive TPI3. Treatment 2 (912): Random assignment to shorter letter & TPI
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
25%
0%
5%
10%
15%
20%
25%
30%
35%Total 2014 (79,061)
% Filing Income Tax Return
Days Post-Issue
25%
30%
0%
5%
10%
15%
20%
25%
30%
35%Total 2014 (79,061)
Group 1 2014 (TPI; 914)
Group 2 2014 (T + TPI; 912)
% Filing Income Tax Return
Days Post-Issue
Treatment 2 (912): For those assigned shortened letter with TPI, now significant increase in filing of 5 percentage points…
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Simplification (Non-Filers)
% Filing (Form 11), 185 days post letter issue
Social Norms (Non-Filers)
Internationally evidence that the behaviour of others strongly influences an individual’s choices. From tax perspective, perception that majority are compliant may make people less willing to evade taxes themselves
Jan 2016, Revenue tested the impact of a localised social norm
Non-filers in 3 counties (Donegal, Meath and Limerick) randomly assigned to receive standard or localised letter (‘9 in 10 filed in your local area’)
In total, 11,246 letters issued, 50% of which were localised
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
0%
2%
4%
6%
8%
10%
12%
3 7 11 15 19 23 27 31
Donegal - Standard Letter (1,607)
% Filing
Days Post-Issue
0%
2%
4%
6%
8%
10%
12%
3 7 11 15 19 23 27 31
Donegal - Standard Letter (1,607)
Donegal - Local Letter (1,606)
Limerick - Standard Letter (1,864)
Limerick - Local Letter (1,864)
Meath - Standard Letter (2,152)
Meath - Local Letter (2,152)
% Filing
Days Post-Issue
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned
Social Norms (Non-Filers)
Summary: Social norms combined with geographic specificity do not significantly impact on filing compliance for any of the counties tested
Limerick Treatment (1,864): Again, no observable difference with social norm
Lessons Learned
Our research shows wording, design and tone matters for influencing compliance. Even seemingly insignificant changes to correspondence can significantly changes behaviour
Lessons learned primarily from letters but they can, and should, be considered in any communication (including electronic channels)
Conducting RCTs not just about careful experimental design. Challenges of logistics and organisational endorsement often more challenging
While RCTs are scientific, they are also highly specific and not always feasible
Empirical demonstrations are persuasive. Where our trials have shown a positive behavioural change, they have been scaled nationwide
Understanding what does not work important as understanding what does (file drawer problem). One of our most striking results is that we find no evidence that social norms impact behaviour (different from similar trials in UK but similar to some in US)
Applying Behavioural Science in Tax Administration – A Summary of Lessons Learned