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DIME Seminar: Imperfect attention in public policy: A field experiment during a tax amnesty in Argentina

March 19, 2019

MC 10-100

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  • Limited attention affects our ability to make good choices, but governments can improve decision-making by providing simpler and more salient information. We evaluate the role of inattention in decision-making in the context of a field experiment  implemented during a tax amnesty in the city of Santa Fe (Argentina). Tax amnesties are advertised to delinquent taxpayers through direct communication. In the intervention we redesign the communication notices sent to the taxpayers to evaluate whether increasing salience and reducing cognitive costs increase the probability that taxpayers put attention to the message and understand better the benefits of tax amnesty. We randomize more than 54,000 taxpayers. A group of taxpayers receives the traditional messages. The treatment groups receive redesigned communications. Our results show that messages that reduce the cognitive costs increase the probability that taxpayers will enter the tax amnesty. The amount collected in the treatment groups is up to 8 percent higher than in the control group. We also exploit the exogenous variation in attention to evaluate the convenience of the tax amnesty program for the city given that some people may stop paying the regular bills (creates moral hazard).  We find that while people are more willing to cancel their past debt, they are also more likely to reduce their compliance with the current tax bills.  Moreover, there is a negative spillover effect for the compliant tax payers (those who had no debts). When the tax amnesty becomes more noticeable, their incentive to comply falls. This paper contributes to the literature by providing the first evaluation of tax amnesties in a field experiment setting. Making public policy more salient, easier to understand, and less cognitive intensive can facilitate the decision-making process.  However, doing it during a tax amnesty may increase collection of past debt, but it could also generate negative incentives for tax compliance in the overall population. 

     

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    CARLOS SCARTASCINI

    Inter-American Development Bank

    Carlos Scartascini is Leader of the IDB Behavioral Economics Group and Principal Technical Leader at the Research Department of the Inter-American Development Bank. He is currently focused on expanding the use of behavioral economics at the IDB and leading many field experiments with governments in Latin America and the Caribbean. His current research focuses on the role of messages and methods of communication to affect behavior and demand for public policy. In addition to Behavioral Economics, his areas of expertise include Political Economy, and Public Finance. He has published seven books and more than 35 articles in edited volumes and specialized journals. He is Associate Editor of the academic journal Economía, and Head and founding member of LACEA's BRAIN (Behavioral Insights Network). A native of Argentina, Dr. Scartascini holds a Ph.D. and a M.A. in Economics from George Mason University.

  • DIME is a World Bank-wide program to generate knowledge on the effectiveness of development policies. Working across 18 thematic areas, DIME collaborates with 300 agencies in 72 countries to improve the effectiveness of policies and programs and strengthen country capacity for real-time evidence-based policy-making. More »

EVENT DETAILS

  • TIME: 12:30PM to 2:00PM
  • LOCATION: MC 10-100, World Bank Main Complex
  • CONTACT: Silvia Velez Caroco
  • svelezcaroco@worldbank.org