In developing countries, where being able to tax citizens is a cornerstone of state formation and survival, tax compliance is extraordinarily low. Typically, these countries are only able to collect between 10 and 20 percent of their GDP in taxes. In high-income countries, the average is 40 percent.
In Guatemala, where half the population lives in poverty, only about 65 percent of those eligible to pay taxes between 2011 and 2015 did so. Tax revenues made up only 12 percent of GDP, less than half the average in Latin America.
In Poland, 62% of people in the country failed to pay their taxes the year before the World Bank initiated its tax compliance experiment there.
And in Kosovo, the government relies on tax collection for more than 85 percent of its revenues. Between 2011 and 2017, total government revenue was just 14 percent of GDP, below the 19 percent average among countries in Europe and Central Asia.
So how to change what people do when the tax man calls? That was the challenge taken on by researchers from the World Bank.
Growing tax collection rates is a major undertaking. Long-term, it calls for establishing fair methods of taxation, strengthening the ranks of tax inspectors and reforming tax systems to make them more progressive. But World Bank researchers set out to determine if a simpler approach could yield results as well. They would change the ask.
Starting in Guatemala in 2015, then in Poland and Kosovo between 2016 and 2018, researchers helped governments institute changes in how tax collection agencies communicate with taxpayers. Instead of sending out notices saying only that tax payments were due, they asked nicely. Literally.
In each country and among different recipients within each country, the messages varied. Some letters reminded recipients that most people do pay their taxes. Others spoke to patriotism, or how much their country needs payments to provide health and security for its citizens. In Poland, the gentle reminders and appeals to patriotism that worked in Guatemala and Kosovo had little effect. What worked best were letters that warned of consequences of non-payment.
But while the approach varied, in each case the goal was the same: to “nudge” taxpayers to change their behavior with simple tweaks that cost little or nothing to implement.
As the idea caught on, the Poverty and Equity Global Practice created a behavioral science team, the Mind, Behavior, and Development Unit (eMBeD), which worked with country management units on the trials, along with the Macroeconomics, Trade and Investment (MTI) Global Practice.