Full title of the project: "Improving the Effectiveness of the IRS' Automated Substitute for Return Program".

Team: Matthias Kasper (project lead, left side of the picture) & Erich Kirchler (University of Vienna, right side of the picture), James Alm & Elliott Isaac (Tulane University).

Institute/Department: Department of Occupational, Economic, and Social Psychology (University of Vienna), Department of Economics (Tulane University).

Goal of the project: Many US taxpayers do not file a tax return and thus do not pay any tax. How can the tax agency increase compliance among these taxpayers? We use insights from psychology to increase the compliance among delinquent individuals.

Why is this important and useful? The Internal Revenue Service (IRS) is currently unable to collect approximately $1 trillion per year in taxes owed. This has negative welfare effects and increases inequality. Our project aims to develop a cost-effective strategy to increase tax compliance.

Abstract: In this project we investigate whether using behavioral nudges with insights from psychology in IRS outreach can serve as a low-cost mechanism to increase tax compliance among non-filers. Specifically, we investigate whether behavioral nudges increase taxpayer engagement with the IRS, as well as the filing and payment compliance of non-filers. The experiment will test whether using psychological insights in designing these letters increases the effectiveness of IRS communications. In particular, we study whether appealing to fairness considerations or enforcement threat can nudge non-filers towards more compliant behaviors. Moreover, we investigate whether simplifying information on IRS services, such as installment plans, or highlighting the difference between filing a tax return and accepting an automated substitute for return prepared by the IRS are effective at nudging non-filers toward filing and paying.

Explanation - easy to understand: Many US taxpayers do not file a tax return and thus do not pay any tax. Non-filing is a problem because it reduces public revenues and increases inequality. Our project investigates whether psychological insights can help to nudge non-filers towards filing a tax return and paying their dues. The aim of this project is to increase tax compliance and to better understand why people pay taxes.