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Nudge enablers at the Canada Revenue Agency
Nudge workshopJuly 22, 2014
2
What is nudge?
Nudge application in international tax administrations
Nudge initiatives at the Canada Revenue Agency (CRA)
Step-by-step guide to nudge
Presentation overview
3
What is nudge?
A policy intervention aimed at changing economic behaviour
Targets the decision-making environment
A cost-effective way to facilitate voluntary compliance
PSYCHOLOGY
+
Effective nudge characteristics Simple information
Easy process
Positive focus
Presents options• Highlight the ‘best’ option
Uses social norms
Highlights benefits of desired behaviour4
UK government: Social norms and timely filing
UK
5
Australian government: Debt correspondence
Objective: Appeal to taxpayers’ psychological drivers to increase and maintain debt compliance
Method: Mailed altered version of previous letter; updated content and format with nudge techniques
Results: Increased compliance, decreased non-compliance compared to previous letter
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4.3%
6.8%
-2.6%
-4.2%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Entered payment
arrangement
Paid in part
or in full
UnpaidIncreased
debt
Compliance behaviours compared to control group
CRA: ‘Get it in Writing’ Campaign
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CRA: Automatic Dialing Announcing Device (ADAD)
Objective: Increase filing compliance by reminding taxpayers of deadlines
Method: Delivered automated messages to new payroll and GST/HST registrants that informed them of their filing and/or remitting deadlines
Results: Increased filing compliance by taxpayers contacted through ADAD, compared to those not contacted 8
Payroll GST/HST0%
10%
20%
30%
40%
50%
60%
70%
39%
56%
43%
61%
Filing compliance for new payroll and GST/HST registrantsNo ADAD ADAD
CRA: Tax-Free Savings Account (TFSA) – approach under development
Objective: Encourage voluntary removal of 2013 TFSA over-contributions and increase future compliance with TFSA rules
Method: Mail non-compliers altered nudge versions of previous communication material
Specific nudge techniques used: • Compliance social norm• Simplified information and rules• Less text• Bullets and short sentences• Less complicated wording
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Nudge Initiative components
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Develop step-by-step
guide to nudge
Recruit behavioural scientists
Partner with academics
Step-by-step Guide to nudge
1. Determine the appropriateness of nudge approach
2. Select and test a suitable nudge intervention
3. Measure results and make recommendations
4. Full implementation of nudge intervention
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Step 1: Appropriateness of nudge
Key considerations:• Objective• Target population
Examples:• Scenario 1: Business owners from a sector
known to be part of the underground economy significantly underreported their income.
• Scenario 2: Taxpayers late-filed their tax return for the past 2 years.
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X
When is nudge most likely to increase compliance?
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Step 1 continued
Unsuitable Suitable
The problem stems from:
• Strong negative attitudes toward the CRA or taxation in general
• Low risk aversion
• Lack of concern with consequences of getting caught
• Perception that cheating on taxes is ‘not a big deal’
• Strong social norm of cheating taxes in their ‘group’ (e.g., business sector, community, etc.)
The problem stems from:
• Genuine error
• Misunderstanding the rules
• Lack of information
• Rationalization (e.g., ‘other people do it’)
• Analysis of associated risks
• Lack of attention
• Ambivalent feelings toward taxation/benefits
Step 2: Select and test nudge
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Ideal research design
Feasible agency
approach
Review literature Consult the experts Determine experimental design Develop nudge materials Understand project constraints/restrictions Test effectiveness
• Focus groups, pre-implementation experiment
Step 3: Measure results, make recommendations
Before full implementation, measure and validate selected nudge approach through sample populations and experiments
Create business case
Always good practice to use control groups from target population, especially when pretesting is not an option
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Form solid evidence base: Does the nudge approach have a strong chance of
success?
Measure effectiveness:Did the nudge intervention
facilitate the desired behavioural outcome? By
how much?
Expected results: To what extent will Nudge
work? What is the expected return on
investment?
Step 4: Full implementation
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Track progress • Measure success• Return on investments
After 1 year or 2, go back to step 3
Determine long-term effectiveness
Make recommendations for extension to other populations
Benefits of nudge approach to compliance
More complete picture of compliance issues Targeted approach for specific populations Simplifies complex processes/difficult decisions Promotes positive attitudes toward CRA Voluntary instead of forced compliance (less intrusive) Cost effective
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ComplianceAttitudes,cognitions,
environment,norms,
decision-making context
Where do we start? Start small and prove nudge works
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Tim
efra
me
for
Res
ult
s
Complexity
Move to e-services
Desired result:Increase direct deposits
Taxpayer owes money
Desired result: Payment is received
Change in filing behaviour
Desired result:Restore regular filing activity
New tax credit results in high volume of enquiries
Desired result: Decrease in phone enquiries