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CEP discussion paper
Eliciting Taxpayer Preferences Increases Tax Compliance
Jan-Emmanuel De Neve, Cait Lamberton and Michael I. Norton
May 2014
Paper No' CEPDP1270:
Full Paper (pdf)

JEL Classification: D03; H26; H30; H50; I31

Tags: tax compliance; taxpayer agency; taxpayer satisfaction; government spending

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 nonbinding preferences over tax spending priorities, leads to a 16% increase in tax compliance. A followup 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 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 $385billion 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.