Nudge enablers at the Canada
Revenue Agency
Nudge workshop
July 22, 2014
Presentation overview
 What is nudge?
 Nudge application in international tax
administrations
 Nudge initiatives at the Canada Revenue Agency
(CRA)
 Step-by-step guide to nudge
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What is nudge?
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PSYCHOLOGY
 A policy intervention aimed at changing
economic behaviour
 Targets the decision-making environment
 A cost-effective way to facilitate voluntary
compliance
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Effective nudge characteristics
 Simple information
 Easy process
 Positive focus
 Presents options
• Highlight the ‘best’ option
 Uses social norms
 Highlights benefits of desired behaviour
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UK government: Social norms
and timely filing
 UK
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Australian government: Debt
correspondence
 Objective: Appeal to taxpayers’ psychological
drivers to increase and maintain debt compliance
 Method: Mailed altered version of previous letter;
updated content and format with nudge
techniques
 Results: Increased compliance, decreased noncompliance compared to previous letter
Compliance behaviours compared to control group
8%
6%
6.8%
4.3%
4%
2%
Unpaid
0%
-2%
-4%
-6%
Entered
payment
arrangement
Increased
debt
Paid in part
or in full
-2.6%
-4.2%
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CRA: ‘Get it in Writing’ Campaign
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CRA: Automatic Dialing
Announcing Device (ADAD)
 Objective: Increase filing
compliance by reminding
taxpayers of deadlines
 Method: Delivered
automated messages to new
payroll and GST/HST
registrants that informed
them of their filing and/or
remitting deadlines
70%
 Results: Increased filing
compliance by taxpayers
contacted through ADAD,
compared to those not
contacted
10%
Filing compliance for new payroll
and GST/HST registrants
No ADAD
ADAD
60%
50%
40%
30%
20%
56%
39%
61%
43%
0%
Payroll
GST/HST
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CRA: Tax-Free Savings Account
(TFSA) – approach under development
 Objective: Encourage voluntary removal of 2013
TFSA over-contributions and increase future
compliance with TFSA rules
 Method: Mail non-compliers altered nudge
versions of previous communication material
 Specific nudge techniques used:
•
•
•
•
•
Compliance social norm
Simplified information and rules
Less text
Bullets and short sentences
Less complicated wording
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Nudge Initiative components
Develop
step-by-step
guide to nudge
Recruit
behavioural
scientists
Partner with
academics
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Step-by-step Guide to nudge
1. Determine the appropriateness of nudge
approach
2. Select and test a suitable nudge intervention
3. Measure results and make recommendations
4. Full implementation of nudge intervention
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Step 1: Appropriateness of nudge
 Key considerations:
• Objective
• Target population
 Examples:
X • Scenario 1: Business owners from a sector
known to be part of the underground economy
significantly underreported their income.
2: Taxpayers late-filed their tax
• Scenario
return for the past 2 years.
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Step 1 continued
 When is nudge most likely to increase compliance?
Unsuitable
•
•
•
•
•
The problem stems from:
Strong negative attitudes toward
the CRA or taxation in general
Low risk aversion
Lack of concern with
consequences of getting caught
Perception that cheating on taxes
is ‘not a big deal’
Strong social norm of cheating
taxes in their ‘group’ (e.g.,
business sector, community, etc.)
Suitable
•
•
•
•
•
•
•
The problem stems from:
Genuine error
Misunderstanding the rules
Lack of information
Rationalization (e.g., ‘other people
do it’)
Analysis of associated risks
Lack of attention
Ambivalent feelings toward
taxation/benefits
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Step 2: Select and test nudge
 Review literature
 Consult the experts
 Determine experimental design
 Develop nudge materials
 Understand project constraints/restrictions
 Test effectiveness
• Focus groups, pre-implementation experiment
Ideal
research
design
Feasible
agency
approach
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Step 3: Measure results, make
recommendations
 Before full implementation,
measure and validate
selected nudge approach
through sample populations
and experiments
 Create business case
 Always good practice to use
control groups from target
population, especially when
pretesting is not an option
Form solid evidence base:
Does the nudge approach
have a strong chance of
success?
Expected results:
To what extent will Nudge
work? What is the
expected return on
investment?
Measure effectiveness:
Did the nudge intervention
facilitate the desired
behavioural outcome? By
how much?
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Step 4: Full implementation
 Track progress
• Measure success
• Return on investments
 After 1 year or 2, go back to step 3
 Determine long-term effectiveness
 Make recommendations for extension to other
populations
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Benefits of nudge approach to
compliance
Attitudes,
cognitions,
environment,
norms,
decision-making
context
Compliance
 More complete picture of compliance issues
 Targeted approach for specific populations
 Simplifies complex processes/difficult decisions
 Promotes positive attitudes toward CRA
 Voluntary instead of forced compliance (less intrusive)
 Cost effective
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Where do we start?
Timeframe for Results
 Start small and prove nudge works
Move to e-services
Change in filing behaviour
Desired result:
Increase direct deposits
Desired result:
Restore regular filing activity
Taxpayer owes money
New tax credit results in high
volume of enquiries
Desired result:
Payment is received
Complexity
Desired result:
Decrease in phone enquiries
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Thank you
Jean-Francois.Ruel@cra-arc.gc.ca
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