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N udge enablers at the Canada Revenue Agency

N udge enablers at the Canada Revenue Agency. N udge w orkshop July 22, 2014. Presentation overview. What is nudge? N udge a pplication in international t ax a dministrations N udge i nitiatives at the Canada Revenue Agency (CRA) Step-by-step g uide to nudge. What is nudge?.

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N udge enablers at the Canada Revenue Agency

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  1. Nudge enablers at the Canada Revenue Agency Nudge workshop July 22, 2014

  2. 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

  3. What is nudge? • A policy intervention aimed at changing economic behaviour • Targets the decision-making environment • A cost-effective way to facilitate voluntary compliance + PSYCHOLOGY

  4. Effective nudge characteristics • Simple information • Easy process • Positive focus • Presents options • Highlight the ‘best’ option • Uses social norms • Highlights benefits of desired behaviour

  5. UK government: Social norms and timely filing • UK

  6. 8% 6.8% 6% 4.3% 4% 2% Increased debt Unpaid 0% Paid in part or in full Entered payment arrangement -2% -2.6% -4% -4.2% -6% 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 non-compliance compared to previous letter Compliance behaviours compared to control group

  7. CRA: ‘Get it in Writing’ Campaign

  8. 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 • Results: Increased filing compliance by taxpayers contacted through ADAD, compared to those not contacted

  9. 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

  10. Nudge Initiative components Develop step-by-step guide to nudge Recruit behavioural scientists Partner with academics

  11. Step-by-step Guide to nudge • Determine the appropriateness of nudge approach • Select and test a suitable nudge intervention • Measure results and make recommendations • Full implementation of nudge intervention

  12. Step 1: Appropriateness of nudge • Key considerations: • Objective • Target population • Examples: • Scenario 1: Business owners from a sector known to be part of the underground economy significantly underreported their income. • Scenario 2: Taxpayers late-filed their tax return for the past 2 years. X

  13. Step 1 continued • When is nudge most likely to increase compliance?

  14. 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 Feasible agency approach Ideal research design

  15. 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?

  16. 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

  17. Benefits of nudge approach to 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 Attitudes, cognitions, environment, norms, decision-making context Compliance

  18. Where do we start? • Start small and prove nudge works Timeframe for Results Move to e-services Desired result: Increase direct deposits Change in filing behaviour Desired result: Restore regular filing activity Taxpayer owes money Desired result: Payment is received New tax credit results in high volume of enquiries Desired result: Decrease in phone enquiries Complexity

  19. Thank youJean-Francois.Ruel@cra-arc.gc.ca

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