The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

All errors are our own.Developing countries struggle to raise sucient tax revenues to fund public services and anti-poverty programs. Indeed, low income countries have signicantly lower tax to GDP ratios than high income countries, despite similar tax rates for major taxes (Gordon and Li 2009;Besley and Persson 2013).A large part of the tax revenue gap can thus be explained by low compliance with statutory tax obligations, one key aspect of which is non-ling. In Costa Rica, about 25% of tax-registered rms, and over 60% of rms that are unregistered but known to the tax authority through third-party reports from other rms do not le their income tax declaration. The numbers are similar in Guatemala, where 28% of registered rms do not le, and across the Latin America region, where the average non-ling rate ranges from 20% to 30%. 1 Similar to other forms of non-compliance, nonling generates costs in terms of lost government revenue, horizontal inequity between taxpayers, and resource misallocation (Skinner and Slemrod 1985;Gordon and Li 2009). Yet, despite its empirical importance, non-ling has received little attention in the literature, which has focused on tax registration of fully informal rms 2 (e.g. De Andrade, Bruhn, and McKenzie 2014) and misreporting among tax lers (e.g. Carrillo, Pomeranz, and Singhal 2016), notably nding these compliance gaps dicult to address. 3 This paper argues that compliance at the tax ling margin can be enhanced with simple and highly cost-eective interventions. We evaluate a nation-wide randomized trial conducted by the tax authority of Costa Rica, in which 49,757 non-ling rms were requested by email to submit their income tax declaration for 2014. 4 To design the strongest possible message, the emails combined three features tested in previous communication interventions aimed at reducing misreporting or payment arrears. Specically, the emails contained strong deterrence content, integrated insights 1 Kettle et al. (2016) for Guatemala. In discussion with the authors, ocials from the Inter-American Center of Tax Administrations reported an average non-ling rate of 20-30% among tax registered rms in the region. A taxpayer is considered a non-ler if it does not le within two months of the ling deadline.2 For the purpose of this paper, rms that are not tax registered are considered fully informal. Firms that comply partially but not fully with their tax ling obligations (e.g. le income tax but not sales tax, or do not le regularly) are considered partially informal.3 Formalizing rms has proven challenging and costly, because the rms' (private) benet of formalization is often lower than the cost of formalization, especially for small rms (McKenzie and Sakho 2010; de Mel, McKenzie, and Woodru 2013; Bruhn and McKenzie 2013). Interventions to reduce misreporting have shown success for the valueadded tax (Pomeranz 2015; Naritomi 2015), but have been less successful for the income tax, where rms can shift evasion from the sales margin to the less veriable cost margin (Carrillo, Pomeranz, an...

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

We report results from a large online randomised tax experiment in Guatemala. The trial involves short messages and choices presented to taxpayers as part of a CAPTCHA pop-up window immediately before they file a tax return, with the aim of priming honest declarations. In total our sample includes 627,242 taxpayers and 3,232,430 tax declarations made over four months. Treatments include: honesty declaration; information about public goods; information about penalties for dishonesty, questions allowing a taxpayer to choose which public good they think tax money should be spent on; or questions allowing a taxpayer to state a view on the penalty for not declaring honestly. We find no impact of any of these treatments on the average amount of tax declared. We discuss potential causes for this null effect and implications for ‘online nudges’ around honesty priming.

The majority of firms in developing countries are informal, yet even among registered firms, tax filing rates are low. We argue that non-filing of taxes among registered firms constitutes an important intermediate form of informality, which can be tackled cost-effectively. Using a randomized experiment in Costa Rica, we show that credible enforcement emails increased the tax payment rate (amount) by 3.4  p.p. (US$15) among previously non-filing firms. Emails that highlight third-party reports of a firm’s transactions further increased compliance. The effect persisted over two years, and treated firms became more likely to report transactions with other firms, facilitating future tax enforcement. (JEL H25, H26, K34, O17)