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

2  What is nudge?  Nudge application in international tax administrations  Nudge initiatives at the Canada Revenue Agency (CRA)  Step-by-step guide to nudge Presentation overview

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 +

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

UK government: Social norms and timely filing  UK 5

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

CRA: ‘Get it in Writing’ Campaign 7

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 8

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 9

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

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 11

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. 12 X

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

Step 2: Select and test nudge 14 Ideal research design Feasible agency approach  Review literature  Consult the experts  Determine experimental design  Develop nudge materials  Understand project constraints/restrictions  Test effectiveness Focus groups, pre-implementation experiment

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 15 Form solid evidence base: Does the nudge approach have a strong chance of success? Measure effectiveness: Did the nudge intervention facilitate the desired behavioural outcome? By how much? Expected results: To what extent will Nudge work? What is the expected return on investment?

Step 4: Full implementation 16  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

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 17 Compliance Attitudes, cognitions, environment, norms, decision-making context

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

19 Thank you