How Tax Reform Design and Information Shape Compliance: Preliminary Results

How does the pace and sequencing of tax reforms influence taxpayer behavior? We design a laboratory experiment to evaluate how individuals respond to gradual versus abrupt tax increases and whether advance information about these reforms alters compliance.
Participants face a multi-period tax schedule in which the statutory rate rises either all at once or in steps. We vary whether individuals are informed from the start about the entire path of tax changes or learn about each change only when it takes effect. While the overall magnitude of evasion does not differ significantly between abrupt and staggered reforms, we find that information plays a critical role: individuals with advance knowledge report significantly more income than those without. These findings highlight the importance of transparency and communication in the design of tax policy, particularly when compliance relies on voluntary reporting and enforcement is imperfect.