Nudging businesses to pay their taxes: Does timing matter?

• This paper studies the effect of varying the timing of reminder letters on the tax payment behavior of small businesses. • We provide an overview of the theoretical and empirical literature on tax compliance and reminders. • A field experiment reveals that a simple reminder letter increases the probability of payment by about 25 percentage points. • Variation over a three-week period in the timing of the reminder letter has no effect on the probability of payment. • Sending reminders early results in faster payment of debts with no effect on the ultimate probability of payment. This paper provides empirical evidence on the implications of the timing of reminders by studying the effect of varying the timing of reminder letters to taxpayers on their payment behavior. The collection of unpaid tax debts constitutes a considerable challenge for tax authorities. We discuss potential mechanisms through which reminders may affect taxpayers' behavior and study the payment behavior of business taxpayers in a field experiment in Australia. We find that a simple reminder letter increases the probability of payment by about 25 percentage points relative to a control group that does not receive a letter from the tax authority. However, variation over a three-week period in the timing of the reminder letter has no effect on the probability of payment within seven weeks of the due date. Our findings indicate that sending reminders early results in faster payment of debts with no effect on the ultimate probability of payment. [ABSTRACT FROM AUTHOR]