Nudge, budge, trudge — How behavioral science can help with tax compliance

Taxes are a constant part of our lives, influencing society through policy and the authorities tasked with enforcing it. Tax compliance is shaped not only by technical rules, but also by choice environments, belief systems, social dynamics, and the actions and attitudes of tax officials, which create emotional and psychological challenges for taxpayers. Taxpayers often experience anxiety, confusion, and uncertainty, which can complicate their interactions with tax systems and authorities. Understanding and addressing these behavioral dimensions is critically important for designing effective tax systems and improving voluntary compliance.
 

A Behavioral Approach to Tax Compliance

At the World Bank’s Mind, Behavior, and Development Unit (eMBeD), we have worked in more than 15 countries and with over 500 tax officials to design and test dozens of behavioral interventions. Our experience shows that a whole-house approach informed by behavioral science can enable effective and sustainable domestic revenue mobilization.

Tax compliance decisions are complex. While the threat of penalties such as jail time is a strong motivator, compliance is also shaped by social, psychological, and cognitive factors. Recognizing these factors also helps policymakers create strategies that work.
 

The Behavioral Taxpert’s Toolkit

Behavioral interventions show significant economic impacts: letters sent to personal income taxpayers in Poland generated millions of dollars in additional revenue while signaling the best approach to increase tax payments. This and other research and fieldwork have led to the development of the “Behavioral Taxpert’s Toolkit”. Described in detail in the new Policy Note, it highlights how behavioral insights can improve compliance and collection, and emphasizes three essential tools for tax practitioners: nudge, budge, and trudge (see figure 1).  

Figure 1. The Behavioral Taxpert’s Toolkit

• A “nudge” is a well-established solution for increasing compliance, providing clear evidence of impact at low economic and political cost. Nudges encourage desired behaviors through reminders, notifications and simplifications, which can improve direct and indirect engagement with taxpayers. Sometimes, reminders,  warnings, moral appeals, or a reduction in sludge (unnecessarily confusing instructions or complicated paperwork) can help taxpayers overcome barriers (See figure 2).
   

Figure 2. The Bumpy Taxpayer Journey

• A “budge” is about changing how people think and feel about taxes on a deeper level. Many of the questions raised in the image above will not be answered in a reminder letter alone. They require constant engagement and dialogue with multiple stakeholders. This can include running public campaigns that explain why taxes matter, or educational programs that teach people about the benefits of paying taxes. The goal of these efforts is to make tax compliance a positive and normal part of life, so people are more willing to pay because they understand its importance for entire societies and see others doing the same.
• A "trudge" focuses on improving the behavior and mindset of the officials who work in tax administration. It’s about making sure they act as civil servants and are fair, helpful, and trustworthy, because they understand that their actions can strongly influence how taxpayers feel about the system. Trudge interventions might include training tax officers to be less biased and more service-oriented or giving them incentives to do their jobs well. By making tax administration more efficient and friendly, “trudges” help build trust between the government and the public, which can lead to better compliance.
   

Diagnosing the Challenge: Evidence Before Action

A key lesson from our work is the importance of diagnosis. Before implementing solutions, revenue administrations need to understand the specific compliance and collection challenges they face. Our Practitioner's Guide provides diagnostic tools to help define problems and identify barriers and enablers in the taxpayer journey. Assumptions are not enough—evidence and analysis must guide action.
 

Making Behavioral Insights Work for Policymakers

Institutionalizing behavioral insights in revenue administration requires investment and political commitment, but the long-term benefits outweigh the costs. Policymakers should prioritize:

• Learning by doing: Establishing a proof of concept through experimentation, impact evaluation, and evidence-based decision-making.
• Building capacity: Recruiting skilled social and data scientists to design and evaluate interventions.
• Investing in IT infrastructure: Quality data is the foundation for regular analysis and effective policy design.

Utilizing Behavioral Science for Revenue Administration

Institutionalizing behavioral insights means adopting evidence-based policy. The World Bank’s DaTax initiative does this by leveraging tax data to strengthen policy design, implementation, and evaluation.

The journey towards a behaviorally inclined, evidence-based revenue administration can be as complex as the challenges faced by the taxpayers. Yet, experiences in various countries around the world show that the benefits often outweigh the costs, especially when the intention is to reduce negative attention and increase positive public perception.