An experiment in Poland showed it was possible to increase the number of people paying taxes by 21% just by changing the wording on letters the government sent to non-payers. When Context Matters: These behaviorally informed paragraphs can be broadly classified into soft- or hard-tone messages. Soft-tone Increasing Tax Payments messages, for example, informed delinquent taxpayers about the high percent of residents that had paid their in Poland taxes on time (reinforcing social norms), and promoted the salience of public goods. They also explained that taxes are used to finance schools, roads, and safety (public It’s the end of April in Poland. While everyone goods, positive framing) or that those services cannot be is happy the harsh winter weather is finally getting provided without taxes (public goods, negative framing). milder, the Polish Tax Authority is worried because Hard tone messages emphasized deterrence 62% of the country failed to pay their taxes on time. interventions, including sanctions for noncompliance Over the past decade, the use of behavioral principles and the framing of non-payment as an intentional and by tax administrations in different countries has been deliberate choice. Some letters used both techniques. gaining ground. Given the country’s tax compliance rate, Polish authorities and the World Bank tested the Payment Rate by Letter Tone use of behaviorally informed letters to late taxpayers (%) in order to determine if this simple solution would 48 *** *** help boost government revenues. 46 The Project 44 *** ‡‡ 42 Our randomized controlled trial (RCT) reached a total 40 of 149,925 individual late taxpayers across the entire country in urban as well as rural areas. Residents were 38 ‡‡ randomly assigned to receive the default (unaltered) 40.2 43.8 46.3 46.9 letter, or one of nine behaviorally informed letters that 36 varied the opening paragraph text. Control group Soft-tone Standard Hard-tone (dunning letter) behavioral behavioral behavioral Source: Ministry of Finance data. Notes: Error bars indicate 95% confidence intervals. Stars indicate a significant difference from the control group (dunning letter)– *=0.1, **=0.05, ***=0.01; daggers indicate significant differencesin the treatment effects (with respect to the standard behavioralletter) between the two groups: †= 0.1., ‡=0.05, ‡‡=0.01. The Results Behavioral insights have a large effect. Cost savings are impressive. Each behaviorally informed letter was significantly In the future, if authorities send the best performing more effective at bringing in payments, increasing letter to all taxpayers covered by the trial, the Polish Tax payment amounts, and reducing tax liabilities of Authority could generate a 56% increase in revenues taxpayers compared to the existing letter. The most (PLN 39,328,742). In addition, we tested ways to successful behaviorally informed letter yielded a 20.8% reduce the cost of sending letters by changing the increase in the number of compliant taxpayers. delivery method from registered to regular mail, and found that regular mail was as effective. This suggests that the tax administration could save substantially by changing the delivery method. Experimenting is key, and context matters. Some of the findings were surprising. Although effect Individual taxpayer characteristics also sizes and cost savings are similar to experiments run influenced responses. in countries such as Guatemala or the UK, the type of Women had a higher repayment rate and were more messages that were most effective in Poland were the responsive to hard-tone messages. Letters with public least effective in the other two countries. In Poland, goods messages were not as effective among people taxpayers reacted more to hard-tone messages between 50 to 64 years-old, but helped increase tax than to milder, soft-tone messages; the social norm compliance among younger people. One explanation for message, for example, showed no improvement to the the latter could be that the younger generation is more baseline behavioral letter. Further analysis is needed likely to benefit from the specific public goods listed in to determine what factors influenced the different the letter. These letters also worked better with rural outcomes, but what this result clearly shows is that taxpayers, possibly due to a tighter link between the behavior is highly context dependent; therefore, outcome of public good expenditures and its relevance experimentation is crucial. to the community. Policy Implications This intervention shows that adapting taxpayer they do not require lengthy and politically challenging communications with a behavioral lens could reforms to tax legislation. It is crucial to test different produce considerable gains. In messages, as their effects may vary with addition to Poland, countries Calibrating reminder messages each country’s context, as well as across such the United Kingdom, individuals. Calibrating reminder messages Australia, Chile, Costa Rica, to different audiences could to different audiences could effectively and more recently Guatemala effectively increase tax compliance increase tax compliance and increase have experimented with and increase government revenues. government revenues. In addition, policy behavioral insights with very makers might want to review the delivery promising results. methods used to communicate with The attractiveness of behavioral interventions is that citizens, especially in the era of digital communication. About eMBeD The Mind, Behavior, and Development Unit (eMBeD), the World Bank’s behavioral science team in the Poverty and Equity Global Practice, works closely with project teams, governments, and other partners to diagnose, design, and evaluate behaviorally informed interventions. By collaborating with a worldwide network of scientists and practitioners,  the eMBeD team provides answers to important economic and social questions, and contributes to the global effort to eliminate poverty and enhance equity. Stay Connected eMBeD@worldbank.org #embed_wb worldbank.org/embed bit.ly/eMBeDNews Last Update: January 29, 2018