Tax Compliance in the Wild: Critical Review of Nudging and Proposition of an Integrative Framework.
| Autor | Carvalho, Hamilton Coimbra |
INTRODUCTION
One useful lens to understand the myriad of social and organizational phenomena is the behavioral one. After all, one can say organizations are in the behavior change market, trying to influence the behaviors of external (e.g., customers) and internal (e.g., workers) stakeholders (Soman, 2015). In this paper, we are interested in how this lens has been employed to address complex social problems, such as tax dodging, but the major points can be generalized to problems private organizations usually face, such as managing their capabilities in the continuous effort to adapt to turbulent market conditions.
From this starting point, we note there has been no shortage of mini-theories and behavioral frameworks in the repertoire of managers and public policymakers. On the contrary, recent years have witnessed an increase in the proposition of new models, perhaps because social problems have become more salient, complex, and intractable or at least recognized as so (e.g., Faulkner et al 2019; Guerra b Harrington, 2018; Michie et al., 2013; Rock, 2008; White et al 2019). This inflation may become a source of confusion for practitioners and public agencies. In particular, it may have led to a pressure for the adoption of behavioral approaches, especially after the success of the so-called nudge units (governmental bodies dedicated to design interventions based on behavioral economics concepts) throughout the world. Indeed, the creation of nudge units increased substantially over the last years in the same pace as popular approaches inspired by behavioral economics, such as the use of defaults, became common parlance in policy circles (Afif, 2017 Benartzi, S.).
Moreover, government executives (and, of course, private managers) also suffer from FOMO, the fear of missing out (Gaurav, 2019). This, in turn, may have inspired the non-critical adoption or mimicking of behavioral 'packages' to address the usual set of problems that these social actors face.
Employing a critical stance toward nudge interventions, we focus, in particular on taxation problems, especially the resistance to paying taxes. We hope the reader can easily perceive the similarities to behavioral challenges in other contexts, such as resistance to vaccination, saving for retirement, the maintenance of customers' preferences, and the loyalty of employees.
The research problem, thus, can be defined as: How can public organizations overcome the narrow focus typically associated with behavioral economics and nudge-like interventions in order to influence the behavior of key stakeholders, such as taxpayers and citizens in general, in a sustainable way?
The goal of the paper is to propose a conceptual solution to this question. Hence, to overcome the noise associated with the inflation of behavioral frameworks and the conflicting aspects of nudging, we propose a conceptual model that puts behavioral models into a broader perspective, which allows the incorporation of other more powerful conceptual lenses.
We note theoretical papers like this one are common in the behavioral science literature (e.g., Cohen b Andrade, 2018; White et al., 2019) and they often do not follow the typical structure found in papers employing qualitative and quantitative investigations. In terms of contribution, we expect to add to systems thinking public administration, and general management literatures, including in the latter case, problems that involve changing human behavior for good (e.g., organizational and consumer behaviors).
The paper proceeds as follows. First, we briefly review the concepts of behavioral economics applied to taxation, encompassing, with the goal of providing some context, an overview of interventions to increase tax revenue in different countries. Then, we discuss at more length major criticisms directed at nudge interventions, emphasizing one that has been overlooked: the lack of systems thinking in the design of the policies. Next, we present a proposition to broaden the theoretical lenses typically adopted by nudge units, incorporating a more diverse set of behavioral theories and systemic thinking. The proposed conceptual model, the Nested Circles Model, minimizes the focus on individual levers that is often a hallmark of behavioral programs and emphasizes how intervention methods can be applied targeting individuals and/or social actors in the broader social environment, with potential for achieving superior results. Finally, we discuss potential applications in the taxation and other societal contexts.
Review of behavioral economics applied to taxation
Behavioral economics is an academic field created by psychologists Daniel Kahneman and Amos Tversky with roots in the work of researchers such as Herbert Simon and even Adam Smith (Ashraf et al., 2005). Drawing on several streams of behavioral science, the field explores the impact of biases, heuristics, and framing on human decision-making (Kahneman b Tversky, 2000). Major concepts from the discipline include framing effects, loss aversion, the endowment effect, availability bias, mental accounting, and the affect heuristic (Kahneman b Tversky, 2000; Slovic et al 2007; Thaler, 1999).
Applications of behavioral economics to taxation have been skyrocketed in the last decade after the publication of the best-seller Nudge, written by legal scholar Cass Sunstem and Nobel Prize winner Richard Thaler, and the creation of the first nudge units in USA and UK (Afif 2017).
A typical intervention concerns redesigning the choice options individuals face in their ordinary lives (the so-called choice architecture) or promoting socially desirable behaviors (eg., organ donation) using techniques such as defaults. Broader frameworks developed under the umbrella of behavioral economics also include MINDSCAPE (Dolan et al., 2010) and EAST (Hallsworth et al., 2016). The former acronym stands for messenger, incentives, norms, defaults, salience, priming, affect, commitment, and ego. The latter, echoing desirable features of behavioral interventions, stands for easy, attractive, social, and timely. Both try to identify common levers for persuasion and behavior change.
Most OECD countries have implemented interventions based on behavioral economics concepts with the goal of increasing fiscal revenues and decreasing tax gaps (the global amount of unpaid taxes). Important for what is discussed next, some agencies have developed their own frameworks to guide their interventions. For instance, the Australian Tax Office (Australian Tax Office [ATO], 2017) provides a list of key behavioral principles, listed below:
* Make it easy. Design processes, systems, and engagement approaches that minimize taxpayers' effort to meet their obligations.
* Provide certainty about processes, time frames, and how to fulfill obligations.
* Target the approach and personalize messages.
* Provide transparency about what the tax agency knows and what it is doing.
* Emphasize the cost of not taking action.
* Provide planning prompts and limit content length to manage cognitive limits.
* Use social norms and rankings to encourage the right behaviors.
* Emphasize the contribution paying tax makes to the community.
* Use better layouts, design, and colors to highlight key messages.
Examples of interventions
We present in Table 1 a sample of interventions in the field of taxation. They are typically randomized controlled trials (RCTS) employing behavioral economics lenses, with reported positive results, such as increasing tax payment or reducing tax debt.
Critical appraisal
In the taxation context, the use of nudges has allowed public executives to reach and grab the mythical low-hanging fruit, increasing revenues with lowcost interventions (e.g., Organization for Economic Co-operation and Development [OECD], 2017). But if nudging and field experiments have led to unmistakable successes (Hallsworth, 2014), this practice has also attracted criticism. Major lines of objections revolve around (1) the narrow scope and scale, lacking the potential to address upstream causes of social problems, (2) its technocratic, top-down, paternalistic, and elitist nature, (3) the methodological bias toward RCTs (randomized controlled trials), and (4) the ethics and political morality, which may undermine people's autonomy by exploiting our bounded rationality (Brown, 2012; Ewert, 2020; Leggett, 2014).
In this section, we expand on these lines of criticism, while grouping them differently.
The first group concerns what Reicher (2021) aptly describes as the trap of 'psychologism,' the tendency to limit psychology to the characteristics and limitations of individual minds. It is a shortsighted view when it comes to the complexity of modern social contexts and that shifts the burden entirely to individuals, while potentially corroding trust, cooperation, and solidarity to boot. In this sense, behavioral economists are "too often concerned with describing how human behavior deviates from the assumptions of standard economic models, rather than with understanding why people behave the way they do" (Gal, 2018, p. 1).
The second group of criticism is paternalism. The core of the argument lies on the manipulation of people to make the 'right' decisions, without them realizing the reason behind (Reicher, 2021). It is a limited approach, the argument goes on, especially when it comes to behaviors in a crisis, such as the recent COVID-19 pandemic. Moreover, it is debatable that someone in a position of power may decide what is best for people without actually consulting them.
French (2011) argues the neoliberal and paternalistic flavor of nudging precludes the maximization of personal decision-making and community empowerment. Moreover, he criticizes the narrow focus of nudge-like programs, which tend to emphasize positive rewards or mindless choosing, whereas, depending on the particularities of the case, different approaches (such as co-creation) may be...
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