Encouraging tax compliance of small business owners in South Africa through nudging

Purpose This study examines the use of three types of nudge messages (reciprocity, social norm, deterrence) as a tool to positively influence tax compliance behaviour of small business owners. Motivation Tax revenues are the main source of government income for many economies and it is through this revenue that citizens can benefit from public goods and services provided by governments. Increasing the level of tax compliance is a step towards a fair allocation of the tax burden and distribution of resources. Design/methodology/approach Data were collected using an online field experiment conducted with small business owners in South Africa as participants. Main findings The experimental results show that nudge messages have an impact on tax compliance behaviour. Exposure to a social norm or a deterrence nudge message has a positive impact on tax compliance when compared with control conditions. The relationship between the social norm nudge message and tax compliance behaviour was statistically significant. However, the results indicate that the impact of nudge messages on tax compliance behaviour is not always positive, as the reciprocity nudge message showed a negative (boomerang) effect when compared with control conditions. Furthermore, the results show tax compliance differences between message types, with the tax compliance difference between the social norm nudge message and the reciprocity nudge message being statistically significant. A similar statistically significant difference was observed between the deterrence nudge message and the reciprocity nudge message. Practical implications/Managerial impact The findings of this study can assist tax authorities in both developing and developed countries with designing appropriate nudge messages. Contribution This study improves understanding of the impact of nudge messages on tax compliance behaviour in a developing country. It provides evidence of the relative strength of reciprocity, social norms and deterrence nudge messages in influencing tax compliance behaviour. Additionally, it seeks to add to the body of knowledge related to how the effectiveness of reciprocity, social norm and deterrence nudges may be affected by perceptions of corruption and attitudes towards tax. The study also contributes to the body of knowledge by considering business taxpayers rather than individuals not in business.