The effect of reciprocity nudges on tax compliance : evidence from an experimental study

Abstract

Governments and tax authorities have taken a keen interest in understanding the effects of nudging as a tool to influence voluntary tax compliance. However, research in this area has focused on developed countries, resulting in limited empirical evidence available relevant to developing countries. This thesis addresses this knowledge gap. It focuses on the use of reciprocity nudges to influence the tax compliance behaviour of individual taxpayers in South Africa. This thesis also explores the role of structural and content attributes of the message in the effectiveness of tax nudges. In this study, a core sequential mixed methods approach was applied. Initially, a qualitative content analysis process was carried out in order to identify structural and content attributes, from existing literature, for an effective message aimed at changing behaviour. This was followed by a quantitative content analysis that was carried out on 12 South African Revenue Service (SARS) videos. The experimental phase of the thesis was then designed based on the results of the content analysis and was conducted with 172 student participants. In addition to its main (confirmatory) finding that nudge messages can make a difference to voluntary tax compliance, four further key findings emerge from this thesis. First, the results indicate that in order for a nudge message to be effective, it must contain certain structural and content attributes. Second, the timing between the exposure to a reciprocity nudge and the making of a tax compliance decision has no statistically significant impact on tax compliance. Third, reciprocity nudges do not appear to be more effective on some sub-groups of the population than others. Fourth, high levels of perceived corruption and attitudes towards tax had no impact on the tax compliance of individuals exposed to a reciprocity nudge. This thesis extends the current knowledge of how insights from behavioural economics can be incorporated to assist with influencing voluntary tax compliance. Furthermore by adopting a mixed method approach this thesis demonstrates how one method can be used to inform another in tax compliance research. The thesis also provides further clarity on the role of structural and content attributes that ought to be incorporated into tax nudge messages.