Do Rewards Work?: Evidence from the Randomization of Public Works

Abstract

work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose, as provided below. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Following a peer review process, and with previous written consent by the Inter-American Development Bank (IDB), a revised version of this work may also be reproduced in any academic journal, including those indexed by the American Economic Association's EconLit, provided that the IDB is credited and that the author(s) receive no income from the publication. Therefore, the restriction to receive income from such publication shall only extend to the publication's author(s). With regard to such restriction, in case of any inconsistency between the Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives license and these statements, the latter shall prevail.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2017 Abstract * This paper evaluates the effect of positive inducements on tax behavior by exploiting a natural experiment in which a municipality of Argentina randomly selected 400 individuals among more than 72,000 taxpayers who had complied with payment of their property tax. These individuals were publicly recognized and awarded the construction of a sidewalk. Results indicate that: i) being selected in the lottery and publicly recognized by the government has a positive but not persistent effect on future compliance; ii) receiving the sidewalk has a large positive and persistent effect; iii) high and persistent spillover effects exist: some neighbors of those who receive the reward comply more too, and these effects can be even larger than the direct effects; and iv) there is no financial motive effect; i.e., people do not pay their taxes just to participate in the lottery. Recognition serves only as a short-term incentive, but the provision of a durable and visible good has more persistent and broader effects. These findings provide evidence on features that make a positive inducement more successful, whether for tax compliance or other policy purposes.JEL classifications: C93, H42, H23, D62

The Effect of Tax Knowledge Reward and Enforcement Strategies on SMEs Tax Compliance Behavior

“…It means that if the taxpayer does not feel something of his actions to pay taxes, the taxpayer would be reluctant to pay taxes in the future. The same result is also found by Carillo et al (2016) stating that visible and durable rewards have a significant positive effect on long-term tax compliance.…”

“…Also, Bornman and Stack (2015b) state that reward systems have a positive effect on taxation behavior of small business owners. This opinion is also supported by Carillo et al (2016), who find that rewards have a positive effect on tax compliance on taxpayers who won the lottery prizes. Bornman and Stack (2015a) also suggest similar research results; rewards have a positive impact on tax compliance.…”

“…Based on research by Carillo et al (2016), the positive reward, in particular, winning the lottery has a positive relationship to tax compliance and taxpayers recognized by the government by publishing to the mass media also has a positive effect on tax compliance. Finally, the chance of winning the lottery has a positive effect on short-term tax compliance while the rewards of road sidewalk development at the taxpayer's location have a positive effect on long-term compliance.…”

Opting Out of the Social Contract: Tax Morale and Evasion

“…According to this literature, individuals may wish to conform to the behavior of relatives, close friends, or acquaintances and so therefore, peer compliance directly affects individual willingness to pay taxes (Castro and Scartascini, 2015;Carrillo et al, 2017;Del Carpio, 2014).…”

“…Behind much of the literature on individual tax morale is one such consideration: the individual's perception of reciprocity (Frey and Torgler, 2007;Daude et al, 2013;Castro and Scartascini, 2015;Ballard-Rosa et al, 2017;Carrillo et al, 2017;Cullen et al, 2018).…”