On 1 September 2021 the OECD’s Forum for Tax Administration issued a paper entitled: Behavioural Insights for Better Tax Administration: A Brief Guide.

Behavioural insights

Cognitive science has found that people process information either in an automatic fashion, without using much conscious thought; or using more deliberate and logical thought. Most human behaviour is a result of automatic reaction, using cognitive shortcuts. Deliberate, logical thought is used for important decisions, non-routine problems or new situations. For example, individuals tend to display loss aversion. When presented with a large number of choices they can make sub-optimal decisions as a result of cognitive overload. Consumers faced with fewer choices are more likely to buy a product; and are likely to be more satisfied with their choice.

Social factors

There are social factors such as the messenger effect, through which a trusted authority on a particular issue is more likely to be believed. If the source of information has an established relationship with the customer, this can have a greater impact.

There is a social norm of reciprocity, the inclination to return favours. People may feel an obligation to people who have helped them. By drawing attention to the fair treatment and the efforts made by the tax administration to help the taxpayer, they may be able to encourage taxpayers to supply accurate information. Environmental factors are also important, for example very prominent and conspicuous messages or other items can capture a person’s attention.

Behavioural insights can help the tax administration to improve tax compliance behaviours; provide better service; and motivate their employees.

Practical implementation

To improve taxpayer awareness of their obligations the tax administration can provide short, clear reminders; simplify text; and use better design to highlight key information. The attention of taxpayers can be focused by prompts and the media can be used to raise taxpayer awareness.

Taxpayers are more likely to complete a process if the number of steps in the procedure is reduced or eliminated. The default option can be changed (e.g. to opt out instead of opt in, or an option to pre-set recurring actions). Taxpayers can be encouraged to commit to a plan.

Peer comparisons can be used to persuade taxpayers to improve their tax behaviour, for example by highlighting high compliance generally among taxpayers. Personalised communication can include taxpayer-specific information, clarifying the consequences of non-compliance. The efficiency of enforcement can be highlighted through media coverage.

Digitalisation

The transition to digitalisation in the tax administration can improve the data available and ensure more accurate behavioural analysis. Digitalisation allows efficient capture of data, such as third-party reporting and details of interactions with taxpayers. With electronic filing, recordings of customer interactions and notes of communications the administration can analyse behaviours, understand trends and pinpoint taxpayer issues.

Building capabilities for behavioural insights

To develop behavioural insights within the organisation, the tax administration could use outside consultants to advise on research, producing a framework for evaluation or developing toolkits. Academic collaboration could be used to improve behavioural insights or evaluate behavioural responses to policies; or internal experts could be used to provide advice, research and training.