A systematised review of the literature related to the use of deterrence and reciprocity messages as a nudge to influence tax compliance behaviour

Abstract

Background: Tax compliance has become a focal point for countries that have to cope with limited revenue and increasing expenditure. Tax authorities do not collect even half of what they would if taxpayers complied with tax laws and regulations. As a result, some governments are compelled to rely on foreign aid to provide public goods and services to their citizens. Therefore, tax authorities must seek ways in which they can encourage tax compliance in order to raise revenue. Main purpose of study: This study focuses on strategies, namely deterrence messages and reciprocity messages, as a nudge to influence tax compliance behaviour. This study creates awareness among tax authorities that such tax compliance strategies have been studied and can be incorporated into the tax collection processes to encourage tax compliance. Method: This was achieved by systematically reviewing academic literature that related to the effectiveness of deterrence messages and reciprocity messages as tax nudges. Results: The results from the systematic review were varied. Deterrence messages as a nudge were effective and positively influenced tax compliance. On the other hand, studies of reciprocity messages indicated that reciprocity messages increased tax compliance while other studies observed no effect. Conclusions: It is irrefutable that a government needs sufficient revenue in order to provide a healthy and functioning society for its citizens. Increasing revenue would allow governments to provide essential public goods and services to citizens. Encouraging tax compliance behaviour through the use of deterrence messages and reciprocity messages will aid tax authorities to collect sufficient revenue to provide a healthy functioning society.