Mpumi Monageng, Senior Lecturer and researcher at University of Pretoria, South Africa
In September 2021, researchers associated with the Scottish Centre for Crime and Justice Research (SCCJR), published a paper on the way the United Kingdom (UK) government uses targeted online advertising as a communication tool and a medium to deliver targeted interventions in the behavioural lives of citizens. In this paper, the authors outline how online tools, traditionally associated with marketers, are being used by government agencies. The revelation of this emerging trend has again ignited a debate around the ethics of nudging, which has been a concern of many scholars across different policy areas where nudging is being used as a means to influence behaviour. Nudges, which are often targeted at ordinary taxpayers and not hardcore tax evaders, may be seen as challenging democratic ideas, such as freedom of choice. Nudges can be paternalistic, and may contradict the idea that governments are supposed to treat citizens with respect and afford citizens the opportunity to make their own decisions, even where those decisions may be flawed (Hansen & Jespersen, 2013; Hausman & Welch, 2010). The merging of nudge-based communication with digital technology, however, further exacerbates concerns around ethics. A critical evaluation of the benefits and potential risks of this developing way of data collection, delivering interventions and communication by governments and their agencies is needed. This post explains this emerging trend and how it may affect the manner in which tax authorities communicate with taxpayers and deliver interventions. It further highlights some potential benefits of such communicative and targeted intervention methods for tax authorities, and offers important ethical considerations.
Public agencies are now moving towards implementing targeted interventions through the use of Surveillance Influence infrastructure. Collier, Flynn, Stewart and Thomas (2022) describe Surveillance Influence infrastructure as networks of global infrastructure, incorporated into the internet for surveilling and influencing behaviour. One example of these targeted interventions in the UK includes the use of purchasing data of individuals who had bought candles online and targeting those individuals with messages related to fire safety (Collier et al., 2022).
The use of Surveillance Influence infrastructure provides a different way of conducting targeted nudge-based communication, which differs from traditional targeted communication such as the use of offline nudges as a way to communicate with citizens. Offline nudges are nudges implemented in non-digital environments. Traditional targeted communication uses information about a particular segment of the population to design and communicate a message, taking into account behavioural patterns within that segment. Combining behavioural insights with digital technology through online targeted communication, however, opens up opportunities for “choice architects” to target specific individuals in an online environment and design nudges that react to taxpayer behaviour on the internet. The targeting of specific individuals can be achieved by using behavioural patterns gathered from sources such as browsing data and online shopping history which are obtained through surveillance. Surveillance Influence has been used for the past decade by the private sector to influence and nudge consumers (Ranchordás, 2020). The combination of behavioral insights and digital technology has revolutionised how marketers and, now increasingly, governments communicate with citizens and nudge citizens towards or away from a particular behaviour.
Nudging has been brought to the forefront by Thaler and Sunstein (2009). Hansen (2016:p.158) defines a nudge as:
“… a function of … any attempt at influencing people’s judgment, choice or behaviour in a predictable way (1) that is made possible because of cognitive boundaries, biases, routines and habits in individual and social decision-making posing barriers for people to perform rationally in their own declared self-interests and which (2) works by making use of those boundaries, biases, routines, and habits as integral parts of such attempts”.
Nudges have been used, and continue to be used, in various policy areas including the health sciences, as a measure to influence behaviour. From a tax perspective, governments and tax authorities have taken a keen interest in understanding the effects of behavioural economics (from which the nudge concept stems) on tax compliance behaviour. Academic research in this area has also increased in recent years.
Organizations such as the Behavioural Insights Team (also known as the Nudge Unit) in the UK and the New South Wales Behavioral Insights Unit in Australia have examined and reported on the use of nudge messages, such as text-message reminders and reminder letters, to influence tax compliance behaviour. These organisations were established to incorporate lessons from behavioural economics and psychology into public policy. An (OECD, 2021) report, “Behavioural Insights for Better Tax Administration: A Brief Guide,” showcases interventions informed by behavioural insights that have been implemented by tax authorities such as the Australian Taxation Office (ATO), Inland Revenue Authority of Singapore and the Belgian Tax Administration, amongst others. These interventions include the use of communication to nudge tax compliance behaviour. Typically, these communications are sent using mediums such as physical letters, SMS, email, television or phone calls. However, with the increased use of digital technologies and the rapid move from traditional platforms of content consumption such as television to online platforms, a shift towards automated and more personalised nudging as a complement to traditional methods of nudging is perhaps inevitable even for tax authorities to ensure accessibility to taxpayers, particularly the younger generation.
The OECD acknowledges the impact that digitalisation has on the way that tax authorities operate and have noted benefits of combining digital technology with behavioural insights. Some of the benefits noted by the OECD are: the ability to analyse taxpayer behaviour, to understand trends, to allow for customised enforcement and aid the delivery of interventions (OECD, 2021). Combining behavioural insights tools such as nudge-based messages with digital technology in many instances can be more cost-effective compared to offline nudges and also assists with delivering a nudge that reacts to individual behaviour at the right time when needed. Surveillance infrastructure provides the tools to implement such interventions in online environments.
Tax authorities such as South African Revenue Services, Her Majesty’s Revenue & Customs and the Danish Tax Agency have used online nudging interventions such as defaults, in a form of pre-populated tax returns filled online. The ATO use real-time data analysis to send customised prompts to taxpayers whilst they are completing their tax returns online. This intervention by the ATO is reported to have resulted in AUD 22.4million in revenue from voluntary adjustments for 2018- 2019 tax filings (OECD, 2021).
The combination of online surveillance and targeted online nudge-based communication may, however, bring different aspects and considerations that are vastly different from the traditional manner of nudging and even different from the online nudge interventions implemented by tax authorities such as the ATO. For example, tax authorities would need to balance the justification of surveillance as a need to safeguard public interest with concerns related to violation of privacy rights and ethical concerns associated with collection of sensitive online data. Therefore, this increasing shift to online nudge interventions and online surveillance should not be done hastily without considering the concerns associated with some of the surveillance and influence practices related to targeted online messaging or nudging. Combining nudging with digital technology can be problematic, from a legal and ethical perspective. There are major privacy concerns related to the collection, storage, processing and use of sensitive data of citizens, which can be regarded as a violation of rights and laws. Furthermore, the use of surveillance may not be supported by taxpayers and could also have an impact on the trust relationship between taxpayers and tax authorities. Research on attitudes towards government surveillance indicate that people’s attitudes towards government surveillance is influenced by factors such as cultural values, institutional trust and privacy concerns. For example, a higher level of institutional trust is associated with support for government surveillance. Further, the support for use of surveillance may depend on the circumstances in which it is conducted. Research has found that support for surveillance for public health reasons was lower than when it is conducted for law enforcement and homeland security (Kao & Sapp, 2022).
Another consideration is that public agencies are unlikely to have sufficient resources and expertise to survey, extract and analyse data, and customise online messages, and may need to partner with the private sector to provide this service. Partnership with the private sector may require public agencies to allow private entities access to their operational data, which also poses a risk to privacy. It is, therefore, important that tax authorities carefully balance the benefits of online surveillance and online targeted nudging with the serious issues related to violations of taxpayers’ democratic rights, rights to privacy and right to confidentiality, should they adopt this route. Important questions to ask are whether such interventions would erode trust in tax authorities; and to what extent would factors such as trust in management of data by tax authorities, justification for implementation of such monitoring for the purpose of tax compliance affect support of such intervention by citizens?
Click for references
Collier, B, Flynn, G, Stewart, J & Thomas, D 2022, ‘Influence government: Exploring practices, ethics, and power in the use of targeted advertising by the UK state’, Big Data & Society, vol.9, no. 1, pp. 1-13.
Hansen, P G & Jespersen, A M 2013, ‘Nudge and the manipulation of choice: a framework for the responsible use of the nudge approach to behaviour change in public policy’, European Journal of Risk Regulation, vol.4, no. 1, pp. 3-28.
Hansen, P G 2016, ‘The definition of nudge and libertarian paternalism: does the hand fit the glove?’, European Journal of Risk Regulation,vol.7, no.1, pp.155-174.
Hausman, D M & Welch, B 2010, ‘Debate: to nudge or not to nudge’, Journal of Political Philosophy, vol.18, no. 1, pp.123-136.
Kao, Y H & Sapp, S G 2022, ‘The effect of cultural values and institutional trust on public perceptions of government use of network surveillance’, Technology in Society,vol. 70, no.2022, pp.1-14.
Maytin, L, Maytin, J, Agarwal, P, Krenitsky, A, Krenitsky, J & Epstein, R S 2021, ‘Attitudes and Perceptions Toward COVID-19 Digital Surveillance: Survey of Young Adults in the United States’, JMIR formative research, vol.5, no 1, pp.1-12.
OECD 2021, Behavioural Insights for Better Tax Administration: A Brief Guide. Paris: Oecd, Available at: http://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/behavioural-insights-for-better-tax-administration-a-brief-guide.pdf.
Ranchordás, S 2020, ‘Nudging citizens through technology in smart cities’, International Review of Law, Computers & Technology, vol.34, no.3,pp.254-276.
 See Collier, B, Flynn, G, Stewart, J & Thomas, D 2022, ‘Influence government: Exploring practices, ethics, and power in the use of targeted advertising by the UK state’, Big Data & Society, vol.9, no. 1, pp. 1-13.
 For a differentiation between offline nudging and online nudging see Weinmann, M, Schneider, C & vom Brocke, J 2016, ‘Digital Nudging’, Business & Information Systems Engineering, vol. 58, no.6, pp.433-436.
 Choice architects are the organisations and individuals tasked with organising the context in which people make choices. SeeThaler, R H & Sunstein, C R 2009, Nudge: improving decisions about health, wealth, and happiness, Revised ed, Penguin, London.
 See Ariel, B 2012, ‘Deterrence and moral persuasion effects on corporate tax compliance: findings from a randomized controlled trial’, Criminology, vol. 50, no. 1, pp.27-69; Bott, K M, Cappelen, A W, Sørensen, E Ø & Tungodden, B 2020, ‘You’ve got mail: a randomized field experiment on tax evasion’, Management Science, vol. 66, no. 7, pp.2801-2819;
Castro, L & Scartascini, C 2015, ‘Tax compliance and enforcement in the Pampas: evidence from a field experiment’, Journal of Economic Behavior and Organization, vol.116, pp.65-82.
Fellner, G, Sausgruber, R & Traxler, C 2013, ‘Testing enforcement strategies in the field: threat, moral appeal and social information’, Journal of the European Economic Association, vol.11, no. 3, pp.634-660.Koumpias, A M & Martinez-Vazquez, J 2019, ‘The impact of media campaigns on tax filing: quasi-experimental evidence from Pakistan’, Journal of Asian Economics, vol. 63, no. 2019, pp.33-43.
 See OECD 2021, Behavioural Insights for Better Tax Administration: A Brief Guide. Paris: Oecd, Available at: http://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/behavioural-insights-for-better-tax-administration-a-brief-guide.pdf