December 5, 2020

Research Shows Peer Pressure Effective in Convincing People to Pay Their Taxes

Most Americans comply with the tax laws, but every year many of our fellow citizens don't. The result is the “tax gap” — the amount of revenue that the government loses because people are cheating. In one recent year, for example, the tax gap was $450 billion. That’s a lot of money — more than 10 times the budget of the State Department.

What can be done to increase compliance? Remarkably, a short letter to delinquent taxpayers — based on the findings of behavioral science — can have large effects. And the central lesson is simple: When tax delinquents are told that most people pay their taxes on time, they are far more likely to pay up. It’s a nudge that can really work. [Bloomberg View]

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