Increasing Tax Compliance by Empowering Taxpayers

Consumers would prefer to spend their money on nearly anything but taxes (Sussman and Olivola 2011). Given this deep-seated hatred of taxes, achieving tax compliance remains a challenge. In fact, as a result of tax avoidance or tax evasion, major public programs in the US are subject to funding shortfalls amounting to over $300 billion per year. Despite the increased attention paid to financial decision-making by consumer behavior researchers, research has not yet documented interventions that increase tax compliance – behavior that can have hugely positive effects on public well-being. We suggest that consumers’ tax compliance can be significantly increased simply by providing them a structured opportunity to voice their opinions about spending priorities. This voice opportunity is offered in a simple advisory allocation process, where consumers provide non-binding input regarding the way their tax dollars are spent. In addition, increased compliance appears to increase satisfaction with payment, suggesting that such an intervention could benefit not only the institutions that depend on tax dollars, but decrease the irritation that taxpayers experience when paying taxes.