Fighting Income Tax Evasion with Positive Rewards

Abstract

This article provides experimental evidence regarding the influence of positive rewards on income tax evasion behavior. In particular, the authors experimentally test the impact of positive rewards in the form of individual lottery winnings for fully compliant taxpayers. Among other things, the authors find that these positive rewards lead to a higher rate of tax compliance. Moreover, there are two gender effects. Males not only evade taxes to a much higher extent than females they also show a stronger positive response to the lottery scheme. This allows us to draw some interesting policy recommendations on the efficient use of rewards as a complement of deterrence policies for fighting tax evasion.

Encouraging Compliance: Bonuses Versus Fines in Inspection Games

“…One strand of research that has investigated both positive and negative incentives focuses on how individuals respond to different reward/penalty schemes in a tax reporting setting (see, for example, Alm et al, 1992;Bazart and Pickhardt, 2011;Kastlunger et al, 2011). Similarly, a literature on public goods provision has studied how players respond to rewards/punishments that are automatically assigned to them depending on how their contributions compare with others (e.g., Falkinger et al, 2000;Dickinson, 2001;Andreoni and Gee, 2011a;2011b).…”

The Effect of Tax Privacy on Tax Compliance An Experimental Investigation

“…Male subjects evade more taxes than female subjects, which comports e.g. with Kastlunger et al (2010) or Bazart and Pickhardt (2011), and economics students are less compliant than others, as has been shown before by Cullis et al (2012). Tax evasion increases with decreasing risk aversion and risk aversion decreases with higher income-together, these effects lead to more tax evasion at higher incomes.…”

How Much Rationality Tolerates the Shadow Economy? – An Agent-Based Econophysics Approach

“…In general, tax experiments provide average data and do not provide individual compliance data of tax payers. The work by Bazart and Pickhardt (2011) is a notable exception and allows to extract the percentage of fully compliant individuals (i.e. essentially c-type agents in our terminology).…”