Analyzing behavioral economics in enhancing voluntary tax compliance in the us among self-employed informal sector workers

Usen, Charles Dickson (2025) Analyzing behavioral economics in enhancing voluntary tax compliance in the us among self-employed informal sector workers. World Journal of Advanced Research and Reviews, 26 (3). pp. 366-384. ISSN 2581-9615

Voluntary tax compliance remains a significant challenge in the United States, particularly among self-employed workers operating within the informal sector. Traditional enforcement mechanisms—such as audits and penalties—often prove inefficient and costly in curbing tax evasion in this decentralized and under-regulated population. This paper explores how insights from behavioral economics can offer a more nuanced and cost-effective approach to fostering tax compliance. It begins by examining foundational behavioral economic principles, including loss aversion, social norm activation, mental accounting, and the power of framing, which collectively influence taxpayer decision-making beyond purely rational calculations. Drawing on empirical studies and experimental interventions from both domestic and international contexts, the paper highlights how behavioral nudges—such as personalized communication, moral reminders, simplified filing processes, and timely prompts—can improve compliance rates without increasing enforcement intensity. Special focus is given to the unique cognitive biases and economic realities of self-employed informal sector workers, including gig workers, freelancers, and sole proprietors, who often lack employer-based withholding systems and face complex tax filing requirements. The paper reviews IRS pilot programs and third-party research that reveal promising behavioral strategies tailored for this demographic. In narrowing its focus, the study proposes a framework for integrating behavioral tools into federal and state-level tax outreach programs targeting informal earners. Policy implications include the need for cross-agency collaboration, digital platform engagement, and privacy-conscious nudging mechanisms that respect autonomy while promoting civic duty. The paper concludes that behavioral economics offers a valuable, scalable supplement to traditional tax policy tools, capable of enhancing compliance and public revenue while preserving taxpayer trust and dignity.