Nudging for prompt tax penalty payment: Evidence from a field experiment in Indonesia

We conduct a randomised controlled trial in Indonesia to evaluate the effect of three intervention letters on tax penalty compliance behaviour.Over 10,000 individual taxpayers are randomly assigned to receive either a deterrence, information, or simplification letter, or no letter.Our results indicate that simplification, which makes paying a penalty less burdensome administratively by providing billing codes to pay the penalties, yields the highest probability of timely settlement, increasing compliance by 32% compared to the control group.Deterrence also positively impacts penalty compliance, increasing timely settlement rates by 27%.The least effective intervention is the information letter.Although associated with a 10% increase in timely settlement, this effect is statistically insignificant at the 10% confidence level.Our results suggest that strategic messaging by tax authorities in developing countries can be a cost-effective tool for improving tax penalty payment compliance.