Friction in Tax Claims [...]

Many people eligible for tax benefits don’t claim those tax benefits, and that’s a problem. The IRS decided to experiment with direct mailings letting people know they had not claimed their money, and seeing if it resulted in them claiming it. But interestingly, they used an experimental method that reveals a lot about the concept of “friction” when it comes to action, as well as motivation. A new paper in the American Economic Review details the results. (Link)

Here’s a list of what they tried:

  • Complexity (design). Simplified design vs. more complex. Complex design features denser text, repeated information.

  • Complexity (length). Lengthy version of application added questions.

  • Benefit display (low and high). Benefit display notes upper bound of credit, some mentioning low numbers ($457) and some mentioning high ($5,000+)

  • Transaction cost (low and high). Adding a note about the time it would take to complete the form, both estimated low (10 minutes) and high (60 minutes).

  • Penalty/audit information. Letting people know they cannot be held accountable for unintentional mistakes.

  • Envelope message. Message in envelope lets people know it is “Good news!”

  • Informational flyer. Flyer details nature of the benefits, why they exist, how they work.

  • Personal stigma reduction. People told they get this benefit because they worked hard.

  • Social influence. People told many similarly situated peers are claiming this benefit.

So first, what did harm?

  • Complex flyers
  • Informational brochures
  • Trying to minimize social stigma (either through personal reduction or social influence)

And what helped? Two things: a shorter, less complex form and a benefit estimate.

And when we say shorter, we’re not talking that much shorter. We’re talking cutting a couple of questions and adding more whitespace, here’s an example of the difference:

(source)
(Source)

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