Work

How resolving enforcement ambiguity reduces tax compliance

Year: 2026

Type: article

Abstract: Tax authorities often leave the consequences of non-compliance unspecified. We examine how disclosing those consequences affects tax payment and income reporting in four experiments. In a field experiment with HM Revenue and Customs, letters randomized to more than 200,000 taxpayers with outstanding income-tax debts increased payment when they warned of unspecified further action. Messages specifying financial or administrative costs did not produce the same benefit. An online payment experiment with 2050 taxpayers across fourteen conditions, including 1194 in the principal factorial design, found that revealing the maximum fine lowered the stated likelihood of paying. The reduction occurred at both modest and severe revealed maxima. It also occurred among participants who learned that the fine exceeded their prior estimate, contrary to the prediction from belief updating. An incentivized experiment with 827 participants extended the effect to income declarations with money at stake, although declarations differed between the two disclosed maxima in this setting. A laboratory experiment with 239 participants recorded differences in pupil dilation across enforcement messages without detectable differences in measured visual attention. Together, the findings suggest that ambiguity about enforcement consequences contributes to compliance. The physiological evidence is consistent with an affective account of this relationship. Disclosing a maximum penalty can therefore have a behavioral cost that tax authorities should consider when communicating enforcement policy.

Source: Accounting Organizations and Society

DOI: 10.1016/j.aos.2026.101666

Authors: Eric Floyd, Michael Hallsworth, John A. List, Robert D. Metcalfe, Kristian Rotaru, Ivo Vlaev