Nudge resistant: Canadians seem to ignore taxman's environmental message

The Canada Revenue Agency ran an experiment last year to see whether it could encourage more Canadians to file taxes online by using friendly letters. An internal analysis obtained by CBC News under the Access to Information Act shows the initiative had only a small impact — Canadians paid little heed to environmental messaging.

$36,000 attempt by Canada Revenue Agency to encourage more online tax-filing shows only modest results

A 'nudge' experiment last year by the Canada Revenue Agency to encourage Canadians to file taxes online had little impact, partly because its environmental messaging fell on deaf ears. (divacreative.com)

Another "nudge" experiment by the Canada Revenue Agency (CRA), this one encouraging taxpayers to file online to eliminate paper, has had little impact, as Canadians appeared to shrug off environmental messaging.

Nudge economics involves sending soft messages to people encouraging them to make desired choices, a practice employed since 2010 in Britain, the United States and elsewhere, and adopted by CRA since 2014.

Last year, the agency randomly selected 25,000 Canadians who had been filing annual income taxes on paper, sending them letters to test whether a message of environmental sustainability would prompt a switch to online.

The CRA experiment included a promise to plant a tree if a taxpayer switched from paper to online tax filing. Some 1,161 people took advantage of the offer. (Free Images)

The group got one of four letters, from a generic version without a specific environmental message, to three others that each stepped up the environmental argument about reducing paper waste.

The strongest of the three letters promised to plant a tree on behalf of the taxpayer if the person switched from paper by the tax-filing deadline.

The CRA then compared behaviours of the 25,000 with a randomly selected control group of 6,250 paper filers.

Some 21.16 per cent of the control group switched to online filing in 2017 without any prompting, compared with 22.49 per cent for the group that got letters — a modest 1.33 percentage point increase for the nudge targets.

Projecting that tiny increase to the 2.36 million Canadians then still filing on paper, the study estimated letters could nudge some 31,400 of them to file online, increasing the online filing rate by about one per cent.

Negligible impact

The experiment also showed that playing the environmental card had negligible impact.

"It should be noted that there was no evidence to indicate that any of the environmental messages were more effective than a generic message or vice-versa," says a November 2017 internal analysis, obtained by CBC News under the Access to Information Act.

"This suggests that the act of sending a letter is more important than the specific content at promoting a switch to online filing. …"

"While statistically significant, the observed effect on online filing was relatively small and may not justify initiatives that come with a non-negligible cost attached, like the tree-planting treatment."

… The observed effect on online filing was relatively small …- Internal CRA report on 'nudge' experiment to encourage more Canadians to file taxes online

Running the experiment cost the agency $36,600, including $4,644 paid to Tree Canada to plant trees for the tax-filers who got the tree letter. Some 1,161 individuals qualified for the planting, at $4 a tree.

A CRA spokesperson, Heidi Hofstad, said the agency this year relied on social media, news releases and interviews with Canadian media outlets — rather than nudge letters — to encourage online filing for 2018.

Hofstad linked the promotional campaign to a 20 per cent increase in new registrations for My Account, a self-serve suite of online options for taxpayers, and to 1.4 million more Canadians signing up for CRA's online mail.

A previous nudge-letter experiment in 2016, this one coaxing Canadians in the underground economy to pay their taxes, had similarly weak results.

Soft-sell letters

The experiment involved sending 6,877 soft-sell letters to home renovators, food-service workers and others in the cash economy, urging them to report their income. The results showed no change in behaviour.

Some experts have said habitual tax evaders are poor candidates for nudge letters because they have hardened attitudes against paying their taxes.

U.S. economist Richard Thaler won a Nobel prize partly for his theories about 'nudging' behaviour. (DPA/The Associated Press)

The agency says it nevertheless has had some success by adding a nudge message to collections letters sent to taxpayers who acknowledge owing money.

"The Agency has found the use of the nudging concept to be a very low-cost and effective approach to influence taxpayer behaviour, and it can result in more taxpayers resolving their debt with the CRA on their own," says the CRA annual report for 2016-2017.

"We currently issue over 800,000 of these messages annually."

In 2017, U.S. academic Richard Thaler won the 2017 Nobel Prize in economics for his work on how human nature affects supposedly rational economic behaviour.

He had helped make popular the idea of "nudging" people toward doing what was best for them. He co-wrote a book on that theme, titled Nudge, in 2008 and was said to have influenced policymakers around the world.

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About the Author

Dean Beeby

Senior reporter, Parliamentary Bureau

Dean Beeby is a CBC journalist, author and specialist in freedom-of-information laws. Follow him on Twitter: @DeanBeeby