The Social Network of Firms: Can Social Incentives and Taxpayer Recognition Improve Tax Compliance?

Improving tax revenue collection is an important priority for developing economies throughout the world. Traditional methods for improving compliance have generally relied on a punishment-based method: audits, coupled with penalties, for non-compliant taxpayers. This study experiments with an alternative strategy, leveraging the power of social recognition to encourage voluntary tax compliance. To create the information required to produce social recognition, researchers partnering with the National Board of Revenue will randomly select taxpayers to receive regular direct mailings where the top taxpayers in each market area will be recognized in front of their peers. Since this type of program places fewer demands on governments and involves lower costs than traditional audit-based methods, social recognition could prove to be an insightful innovation—one that could be applied more broadly to other countries and sectors struggling with governance failures.