Over the past few years, BIT has implemented a number of successful trials using letters to remind people to pay their taxes. In March 2015, we ran our first trial in Costa Rica. In this case we tested sending emails – an even lower cost intervention than letters.
Working with Anne Brockmeyer and Marco Hernandez from the World Bank, and the tax authority in Costa Rica, we sent emails to 12,515 firms that had failed to submit their 2014 income tax declarations. The tax authority also had third-party information on transactions made by all of these firms from the 2014 tax year (recorded by other firms, state institutions and credit or debit card sales).
Firms were randomly allocated to receive one of: no email; a behaviourally informed email (which was personalised, included a deterrence message, and contained a direct web link); or the same email but additionally including examples of transactions made by the recipient firm and highlighting that these were known by the tax authority in the text.
The results show that the behavioural email reminders nearly tripled the rate of declarations by firms from 11.5 to 32.5 per cent. Including third-party information in the email increased declaration further still, to 34.2 per cent (see graph below). The behavioural emails also increased the average amount paid from US$9 to $24, with specific third-party information increasing payment further to $27 (although this was not statistically significantly different from the behavioural emails without third-party information).
The emails were also found to increase the rate of tax declaration and payment in the tax year prior to the intervention, showing that taxpayers were more likely to catch up with previous outstanding obligations. Additionally, one year later, the emails were then found to increase declaration and payment in the tax year following the intervention (without any further communication).
This finding on habituation replicates that of our previous work in Guatemala and suggests that we may be permanently raising firms’ perceptions of monitoring or enforcement and hence their compliance level, rather than just nudging them into payment. In this trial a single email changed behaviour a year later – imagine if every email you sent had effects that last this long!
Rates of tax declaration under different email conditions