The power and peril of nudging non-compliant firms: A field experiment on tax compliance

This is the authors' abstract. We don't add key points for this paper.

We explore the power of behavioral nudges to increase tax compliance among non-compliant firms through a large-scale field experiment with the Department of Revenue of Espírito Santo, Brazil. We modify the existing notification letter to include different nudges related to reciprocity, social norms, or salience. Results show that while reciprocity and salience nudges have no impact, social norm nudges exhibit significant economic effects. A majority norm nudge increased payment probability by about 6 percentage points (52% increase), whereas a minority norm nudge sharply decreased it by about 7 percentage points. These contrasting findings, diverging from some previous work, underscore the importance of contextual factors like perceived norms in shaping taxpayer responses to nudges. We highlight the perils of indiscriminately extrapolating nudge-based strategies across diverse cultural settings without understanding the local context. Our results offer guidance for policymakers on effectively leveraging behavioral insights to improve tax compliance.