The application of tax psychology/tax sociology and behavioral sciences to improve tax compliance

The developed countries, since the end of the first world war and with greater intensity from the 1960s with the School of Psychology and Fiscal Sociology of the University of Cologne (Germany) [1], have created study units of tax sociology to improve fiscal public policies and the management of tax administrations.

These studies have focused, both on the tax system and on the image of the tax administration, to analyze the behavior of the taxpayer, and in this way, to be able to apply strategies leading to improving voluntary compliance.

 

Research methods

The extensive international experience [2] shows us the different methods of sociological research that are applied in the field, namely: a) surveys, b) scientific research and c) working groups with representative entities.

Surveys tend to a greater or lesser extent to obtain citizens’ perceptions about: a) the valuation and provision of public services, b) the tax burden and tax behavior, c) tax evasion and d) the image of the tax administration. Its objective is the logical correlation between public services and taxes.

A specific and enlightening interest of these surveys is to know if they prefer the reduction of the services they enjoy with tax reduction or instead, they prefer that taxes increase to obtain greater services.

Another important aspect that they seek to know is the perception about the level of evasion and which segments of society are the ones that evade the most, and therefore, by the social contagion effect, to know which segment entails a weakness of tax compliance.

The institutional image of the tax agency is particularly important to generate policies that strengthen it or solve its weaknesses. Taxpayers can perceive in their dealings with the TA what satisfies them and what affects them, that is why their knowledge is necessary to develop strategies that overcome the organizational culture.

The Swedish case is instructive, given that its image as an organization was sometimes superior to the rest of other public agencies, despite the fact that many of them were limited to granting benefits. [3] This implies that the taxpayer knows how to distinguish the mission of the organization with the efficiency of its management.

Scientific research is conducted through the study centers of the most prestigious universities for their academic level and objectivity. Internationally, the study centers of the universities of Cologne (Germany), Chicago (USA), Auckland (New Zealand), Cambridge (UK), Lausanne (Switzerland), etc. stand out.

There are also countries that conduct them through public organizations, such as Spain with the CIS (Sociological Research Center dependent on the Presidency of the Nation) and the IEF (Institute of Fiscal Studies, dependent on the Ministry of Economy) [4]. And other countries through independent organizations, such as in the United Kingdom the IEF (“Institute for Fiscal Studies”) that receives public, international and private funding.

Another method is the formation of working groups with professional and business entities to interact in order to learn about the existing problems in the management of the organization and find solutions aimed at facilitating compliance. In addition, they can be very useful to organize a “focus group” aimed at obtaining the behavior of taxpayers by economic activity, geographical region, business size, etc.

 

Behavioral techniques

The OECD as of 2017 [5] has recommended to the public bodies of its member countries the use of Behavioral Science for the purpose of formulating effective public policies.

To do this, he developed a Guide on Behavioral Techniques for their application, determining the stages and factors that must be taken into consideration for their effective application.

This technique has been used by tax administrations, such as the IRS (USA), the AEAT (Spain), the IR (UK), the IR (Canada), the tax authorities of Poland, New Zealand, etc.

Some tax administrations put the emphasis on collection management (USA, UK, Poland, New Zealand), while others focused on the benefits of taxpayers (Denmark, the Province of Biscay and the Regional Community of Navarre) and others on control (Canada, Spain).

It is based on proven behavioral evidence that often contradicts behaviors based on rational decisions or classical theories of economic behavior (utility theory of economic psychology). This contradiction between what is and what is believed to be, has motivated the failure of many tax administration efforts.

The Behavioral Insights (BI) technique can be applied by the TA’s tax sociology or tax behavior unit. According to the countries it receives different names namely in Canada “Inland Revenue – Accelerated Business Solutions Lab”, in Poland (“Mind, Behavior, and Development Unit”), etc.

This technique is used to identify the problems of taxpayers’ behaviors, their causes, their perceptions, to determine “a posteriori” the appropriate strategy to reality, which enables a positive change of taxpayers in the fulfillment of tax obligations. It attaches a great importance to the social context as a determinant of the taxpayer’s behavior.

 

Conclusion

Extensive international experience has shown that it is not indifferent to the tax administration managers and the government policy makers to be aware of the taxpayers’ perception about the provision and delivery of services, the tax burden and tax returns, tax evasion, and the image of the tax agency.

Currently, the application of behavioral sciences has been added to the classical methods, to apply effective public policies taking into account the real behavior of the taxpayer. There are several methods and some countries have preferred one over the other, or the simultaneous use of several of them to achieve their purpose.

What is clear from all the international experience is that the tax administrations from LAC countries cannot remain indifferent to the application of this methodology to improve the voluntary tax compliance of taxpayers.

 

[1] Günter Schmölders, Jean Duberge (1965): “Problemas de Psicología Financiera”, Derecho Financiero, Tratados de Derecho Financiero y de Hacienda Pública, Madrid. Günter Schmölders (2006): “The Psychology of Money and Public Finance”, Palgrave Macmillan, New York.

[2] Serrano Pablo Grande (2021): “International Experience of Economic Psychology”, Revista de Administración Tributaria N° 47, CIAT, AEAT, IEF, Panama.

[3] Stridh Anders (2011): “Compliance Strategist Swedish Tax Agency (Sweden). The Strategic Plans and Tax Morales”, 45th General Assembly of CIAT, Inter-American Center of Tax Administrations.

[4] Eloísa del Pino, Ariane Aumaitre, Ines Calzada, Antonio M. Jaime-Castillo, Jorge Hernández Moreno and F. Javier Moreno-Fuentes (2021): “Innovaciones metodológicas para estudiar la opinión ciudadana y mejorar el sistema fiscal: Propuestas para consolidar el Barómetro Fiscal del IEF Proyecto (MACF), Midiendo las Actitudes Ciudadanas hacia la Fiscalidad fiscal”, Working paper N° 6/2021, Ministerio de Hacienda y Función Pública, Instituto de Estudios Fiscales (IEF). María Goinaga Ruiz De Zuazu y Patricia Gutiérrez Moreno (2014): “Medidas sociales para combatir el fraude en España”, Working paper N° 184/2014, Laboratorio de Alternativas, Madrid.

[5] OECD (2017): “Behavioural Insights and Public Policy. Lessons from Around the World”, Paris.

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