How a gentle nudge can impact government programs

For the Pennsylvania Department of Revenue, the key to increasing voluntary taxpayer compliance was a gentle nudge.

Officials tested this idea by sending different notices of delinquent tax payments to small-business owners. Working with MITRE’s three-year-old Nudge Lab, the department sent its standard notice to businesses that hadn’t sent in their taxes. Firms that still hadn’t paid received the standard notice a second time, while others got the nudge -- a revised letter that replaced “legalese” with language that business owners could easily understand and added a call to action in the first sentence.

“What MITRE really helped us to do was evaluate ease of understanding of the language, overall appearance of the document -- making it more like what you would get from a private company trying to solicit you to do something,” Radee Skipworth, the department’s deputy secretary for compliance and collections.

The department saw a 36% response rate after sending out a nudge reminder, compared to 26% for the standard reminder. Of those who got the nudge, 22% paid the debt, compared to only 13% who paid after receiving the standard letter a second time.

Nudging is simply a way to influence behavioral change. Long a tool of the private sector, the 2008 book “Nudge: Improving Decisions About Health, Wealth, and Happiness” showed how behavioral insights could be used in public policy.

“We’re changing how the choice is presented,” said Laura Leets, principal social scientist at MITRE. “Interventions with the nudge should work with technology and make it easy. This isn’t supposed to be adding anything. They’re supposed to be quick, easy changes [that have] disproportional impact.”

To do the nudge experiment, the department revamped the processes it used to disseminate notices, said Kevin Milligan, special adviser to the deputy secretary for taxation at the department. “We used business analysts to customize all those processes, make sure systems were getting updated and … make sure that the agents that fielded the calls [from business owners about taxes] knew what the notices looked like,” he said.

The nudge notice is now integrated into the department’s system for business tax collection but is on hold because of the pandemic. It will resume in mid-July, Milligan added.

The department is also looking at using nudges in other areas, such as filing taxes electronically. The more businesses that file tax returns and payments online, the better services the department can provide, Milligan said.

“For example, many taxpayers, if they were requesting a refund in their personal income tax return and they met all the analytical criteria for their filing would have received that refund seamlessly if they filed electronically,” he said. “They would have had a significant wait if they filed in paper.”

Similarly, small-business taxpayers who must file income tax do so quarterly using paper checks, but the department can use nudging to get them to pay electronically instead.

“It’s just easier to process and faster to process and that’s really what taxpayers want,” Skipworth said. “Taxpayers want to send us their returns, and then they want to know whether or not we’ve accepted them. So if we can do that sooner with the electronic submission process, that would be huge.”

Nudging at work in other areas

ideas42, a nonprofit behavioral design lab, helps cities set up interventions that deliver value through its CityNudge Accelerator. For instance, it has worked with the New York City Fire Department to assess whether waiving filing fees would increase the diversity of applicants taking a qualifying exam. The change resulted in a 36.7% increase in applications overall, an 84% increase among black applicants and an 83% increase among women.

“In every field where you have people who have to make decisions and take actions in order for policy goals to be reached, you have the chance for those decisions and actions to be biased in some way and therefore the need to reinforce them with particular intervention,” said Josh Martin, managing director at ideas42.

The company is currently looking at ways to get hard-to-reach populations to act on their intentions to vote. “It’s not that people don’t want to vote or that they don’t know when the election is, it’s just that when the moment comes, they don’t have a plan to actually get there,” Martin said. “So, the idea of actually putting together the set of actions to get out to the polling place in that moment on that day can be really difficult if you haven’t thought it through in advance.”

At the national level, the Federal Retirement Thrift Investment Board uses nudging to encourage federal employees to save more money for retirement through the Thrift Savings Plan. Four outreach efforts led about 43,000 people to contribute a total of about $34 million in savings.

The White House’s Social and Behavioral Science Team – a nudge unit – was launched in 2014. Its projects “made government programs easier to access and more user-friendly, and have boosted program efficiency and integrity,” the Obama administration said. The Trump White House later eliminated it.

The COVID-19 pandemic will likely help advance nudging, the Pennsylvania Revenue Department’s Skipworth said. “I suspect that coming out of this pandemic time period, where resources will be less, we’ll be trying to contact constituents or customers in the most inexpensive way possible,” he said. “I think that nudge is going to be something that other agencies are going to want to do to get the word out for whatever their message is because we’re just not going to have the resources.”

Editor's note: This article was changed June 29 to correct the name of Kevin Milligan, special adviser to the deputy secretary for taxation at the Pennsylvania Department of Revenue.