Governments enact major tax reductions to influence economic activity, redistribute tax burdens, and build political support. However, the effect of these reforms often depends on whether taxpayers know about them. We provide field-experimental evidence on the magnitude of tax policy information frictions and on whether direct tax authority communication can reduce them. Partnering with the Hawaii Department of Taxation, we randomize informational letters to a sample of Hawaii taxpayers about the state’s largest-ever individual income tax cut, enacted to address the rising cost of living. We supplement the letter with a follow-up survey to measure both taxpayer awareness and perceptions. One year after enactment, and following a statewide media campaign, we find that only 31% of control-group respondents who did not receive a letter are aware of the cut. A single one-page letter raises awareness to 60%. Linking survey responses to administrative tax records, we find that information frictions are regressive, as lower and middle-income taxpayers are less informed at baseline and appear to respond more strongly to the letters. Using letter assignment as an instrument for awareness, we find that awareness both improves perceptions of affordability and lowers expected future tax rates. Taxpayers report trusting direct mail from the tax authority more than any other source of information about the cuts, including news media and social media. Our results suggest that direct informational outreach by tax agencies can be an effective tool to both increase awareness and shape perceptions of fiscal policy.
| Speaker: | Dr Rebecca Lester Associate Professor of Accounting, Stanford University |
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