Business, Economics and Jobs

Tax evasion can be solved through peer pressure


Revenue agencies are increasingly relying upon peer pressure to make tax cheats pay up.


Tim Boyle

Tax evasion is a rampant, yet underreported problem around the world that has extraordinarily detrimental effects on numerous economies.

Just ask Greece.

Solutions to tax evasion normally involve painstaking investigations by authorities and sometimes police.

However, some economists think that one of the most effective ways to crack down on people who don't pay taxes is simple peer pressure.

Using studies conducted on persuasion and peer pressure, the British tax agency, Her Majesty's Revenue and Customs (HMRC) has been testing different strategies to make people pay their taxes, reported Reuters.

In letters to Britons who haven't paid taxes, the agency writes: "Nine out of 10 people in the UK pay their tax on time."

”You are one of the few who have not paid us yet," it adds later, said the Consumerist, which raised the success rate of people paying by 3.8 percent.

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That rate jumped to over six percent when those people were told they were one of the only people in town to have unpaid taxes.

Behavioral economists say that penalties may not be as effective as more emotional targetting, such as shaming, as material self-interest is only part of the problem.

Reuters said that Washington State's revenue service also changed their procedures in telling people in more straightforward language about their tax compliance issues.

This raised revenue over 40 percent and earned the state an extra $321 million in revenue.

The Greek government in their desperate search for extra tax revenue might want to listen closely.