When people feel that they don’t have a voice in determining what their government does, they often check out of the political process. One result of that: They do what they can to avoid taxes.
But there’s a way to change the way people feel—and increase tax compliance in the process.
Research we conducted with
Jan-Emmanuel De Neve
at the University of Oxford suggests that the key is giving people the sense that they have a voice in how their taxes are spent. In a laboratory experiment designed to mirror the tax system, we gave participants the opportunity to earn extra cash by completing a simple task, but there was a catch. If they agreed to do the task, they would have to pay us a “laboratory tax” of 30%: We would pay them $10 for their work, but they would need to give us back $3. And we told them that if they failed to pay the tax, they might be selected for an audit and have to pay the $3 plus a penalty.
For some people, though, we added a twist. Before they decided whether or not to pay their taxes, they were asked to share their ideas about how their tax money should be distributed to help pay for various “infrastructure improvements” to our laboratory—such as beverages, snacks, and enhanced incentives for future study participants. They were given no guarantee that we would spend according to their ideas, but were assured we would take them into account. Other people weren’t given this voice, and simply had to pay up.
Giving people a voice had a big impact on tax compliance. More than two-thirds of those who were asked to share their ideas paid their taxes in full, compared with just over half of those who weren’t consulted.
Out of the lab
But does this laboratory experiment really have implications for citizens paying their yearly tax bill?
In a separate study, we showed people a version of the Federal Taxpayer Receipt (first created in 2011), which breaks down tax spending by budget category, with more than a dozen categories listed, including national defense, health care, education and job training, natural-disaster response, international affairs and agriculture.
We asked some taxpayers to allocate a percentage of their annual tax payment across budget categories in ways that reflected their priorities. And again, other citizens weren’t given this opportunity. We then asked everyone about their willingness to take a hypothetical tax loophole for which it wasn’t clear they qualified the next time they completed their taxes. About 40% of those people who were given a voice said they would take the loophole, compared with about 65% of those people who weren’t asked their preferences.
Our strategy for transforming taxes from a perennially unpopular rite of citizenship to an opportunity for a voice in government has a few caveats. First, people’s input can’t be limited to helping decide how to distribute tax money among budget categories that are generally unpopular—some popular options have to be included as well. Our research shows that people who are only asked to decide how to allocate money among unpopular budget priorities are more likely to avoid paying taxes.
Second, giving only people who pay taxes a voice in how those taxes are spent would equate participation in government decisions with wealth—people who don’t pay taxes must also be given a voice.
And there is one final risk to opening the door to citizens sharing their ideas: People need to believe that someone is actually listening. Offering people a voice can lead to expectations that government will follow through, providing more funding to those causes that people favor. While this may sound like it could lead to mayhem—what if all citizens decided that all money should go toward one single budget category—our research shows that the preferences of citizens aren’t dramatically different from current budgetary priorities.
On average, citizens tend to lean toward a less lopsided pie, shifting slightly away from military spending toward less well-funded categories. In the aggregate, however, our studies indicate that overall spending allocations would be little changed. Moreover, our research shows that giving citizens a voice in as little as 10% of the total budget is enough to improve their feelings about paying taxes, so the total impact on the budget can be limited that way.
One example of limited involvement is the Participatory Budgeting program of the city of Cambridge, Mass. The city sets aside a certain amount of money for community-improvement projects, elicits ideas for projects from its citizens and then allows them to vote on which of several projects to fund. Last year, residents chose projects including planting more trees, assisting the homeless and upgrading crosswalk safety.
Programs like these in the U.S. and around the world offer clear evidence that given the opportunity, people are ready and willing to voice their preferences on how tax money should be spent. The potential benefits that our research has documented should encourage more governments to offer them that opportunity.
Dr. Lamberton is an associate professor of marketing at the University of Pittsburgh. Dr. Norton is a professor at Harvard Business School. Email firstname.lastname@example.org.
Appeared in the February 12, 2018, print edition as ‘To Get More People to Pay Taxes, Give Them a Voice.’