Hostname: page-component-cc8bf7c57-77pjf Total loading time: 0 Render date: 2024-12-10T07:15:32.109Z Has data issue: false hasContentIssue false

Happy taxation: increasing tax compliance through positive rewards?

Published online by Cambridge University Press:  15 October 2015

Hilke Brockmann
Affiliation:
School of Humanities and Social Sciences, Jacobs University Bremen, Germany E-mail: h.brockmann@jacobs-university.de
Philipp Genschel
Affiliation:
Robert Schuman Centre for Advanced Studies, European University Institute, Italy E-mail: philipp.genschel@eui.eu
Laura Seelkopf
Affiliation:
Research Center on Inequality and Social Policy, University of Bremen, Germany E-mail: laura.seelkopf@uni-bremen.de

Abstract

Can governments increase tax compliance by rewarding honest taxpayers? We conducted a controlled laboratory experiment comparing tax compliance under a “deterrence” baseline with tax compliance under two “reward” treatments: a “donation” treatment giving taxpayers a say in the spending purposes of their payments and a “lucky” treatment giving taxpayers the (highly unlikely) chance of winning a lottery. The reward treatments significantly affected tax behaviour but not in a straightforward manner. Although female participants altered their behaviour as expected and complied somewhat more, men strongly reacted in the opposite manner: they evaded a much higher percentage of taxes than under the baseline. Apparently, there is no one-size-fits-all approach to boost tax compliance.

Type
Research Article
Copyright
© Cambridge University Press, 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

References

Alesina, A., Ichino, A. and Karabarbounis, L. (2011) Gender Based Taxation and the Allocation of Family Chores. American Economic Journals: Economic Policy 3: 140.Google Scholar
Ali, M., Fjeldstad, O.-H. and Sjursen, I. H. (2014) To Pay or Not to Pay? Citizens’ Attitudes Toward Taxation in Kenya, Tanzania, Uganda, and South Africa. World Development 64: 828842.Google Scholar
Allingham, M. G. and Sandmo, A. (1972) Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics 1: 323338.Google Scholar
Alm, J. (2011) Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies. International Tax and Public Finance 19(1): 5477.Google Scholar
Alm, J., Bloomquist, K. M. and McKee, M. (2015) On the External Validity of Laboratory Tax Compliance Experiments. Economic Inquiry 53(2): 11701186.Google Scholar
Alm, J., Cherry, T., Jones, M. and McKee, M. (2010) Taxpayer Information Assistance Services and Tax Compliance Behavior. Journal of Economic Psychology 31: 577586.CrossRefGoogle Scholar
Alm, J., Jackson, B. R. and McKee, M. (1992) Deterrence and Beyond: Toward a Kinder, Gentler IRS. In Slemrod J. (ed.), Why People Pay Taxes. Ann Arbor, MI: University of Michigan Press, 311329.Google Scholar
Alm, J., Jackson, B. R. and McKee, M. (1993) Fiscal Exchange, Collective Decision Institutions, and Tax Compliance. Journal of Economic Behavior and Organization 22: 285303.Google Scholar
Alm, J. and Torgler, B. (2011) Do Ethics Matter? Tax Compliance and Morality. Journal of Business Ethics 101: 635651.Google Scholar
Andreoni, J. (1990) Impure Altruism and Donations to Public Goods: A Theory of Warm-Glow Giving. The Economic Journal 100(401): 464477.Google Scholar
Andreoni, J. and Vesterlund, L. (2001) Which is the Fair Sex? Gender Differences in Altruism. The Quarterly Journal of Economics 116(1): 293312.Google Scholar
Ariyabuddhiphongs, V. (2011) Lottery Gambling: A Review. Journal of Gambling Studies 27(1): 1533.Google Scholar
Barnes, G. M., Welte, J. W., Tidwell, M.-C. O. and Hoffman, J. H. (2011) Gambling on the Lottery: Sociodemographic Correlates Across the Lifespan. Journal of Gambling Studies 27(4): 575586.Google Scholar
Casey, E. (2008) Working Class Women, Gambling and the Dream of Happiness. Feminist Review 89: 122137.Google Scholar
Chung, J. and Trivedi, V. U. (2003) The Effect of Friendly Persuasion and Gender on Tax Compliance Behavior. Journal of Business Ethics 47(2): 133145.Google Scholar
Croson, R. and Gneezy, U. (2009) Gender Differences in Preferences. Journal of Economic Literature 47(2): 448474.Google Scholar
Cummings, R. G., Martinez-Vazquez, J., McKee, M. and Torgler, B. (2009) Tax Morale Affects Tax Compliance: Evidence from Surveys and an Artefactual Field Experiment. Journal of Economic Behavior and Organization 70: 447457.Google Scholar
Druckman, J. N. and Kam, C. (2011) Students as Experimental Participants: A Defense of the “Narrow Data Base”. In Druckman J. N., Green D. P., Kuklinski J. H. and Lupia A. (eds.), Cambridge Handbook of Experimental Political Science. New York, NY: Cambridge University Press, 4157.Google Scholar
Eckel, C. C. and Grossman, P. J. (1996) The Relative Price of Fairness: Gender Differences in a Punishment Game. Journal of Economic Behavior & Organization 30(2): 143158.Google Scholar
European Research Network on Philanthropy (n.d.) Spain, http://ernop.eu/countries/spain/ (accessed 27 April 2015).Google Scholar
Feld, L. P. and Frey, B. S. (2007) Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation. Law & Policy 29(1): 102120.Google Scholar
Feld, L. P., Frey, B. S. and Torgler, B. (2006) Rewarding Honest Taxpayers? In Elffers H., Verboon P. and Huisman W. (eds.), Managing and Maintaining Compliance. Den Haag: Boom Legal Publishers, 4561.Google Scholar
Fooken, J., Hemmelgarn, T. and Herrmann, B. (2014) Improving VAT Compliance – Random Awards for Tax Compliance. European Commission Taxation Papers Working Paper No. 51-2014, European Commission, Brussels.Google Scholar
Frey, B. S., Benz, M. and Stutzer, A. (2004) Introducing Procedural Utility: Not Only What, But Also How Matters. Journal of Institutional and Theoretical Economics 160(3): 377401.Google Scholar
Frey, B. S. and Jegen, R. (2001) Motivation Crowding Theory. Journal of Economic Surveys 15(5): 589611.Google Scholar
Friedland, N., Maital, S. and Rutenberg, A. (1978) A Simulation Study of Income Tax Evasion. Journal of Public Economics 10: 107116.Google Scholar
Gilligan, C. (1982) In a Different Voice: Psychological Theory and Women’s Development. Cambridge, MA: Harvard University Press.Google Scholar
Harbaugh, W. T., Mayr, U. and Burghart, D. (2007) Neural Responses to Taxation and Voluntary Giving Reveal Motives for Charitable Donations. Science 316(5831): 16221625.Google Scholar
Hasseldine, J. and Hite, P. A. (2003) Framing, Gender and Tax Compliance. Journal of Economic Psychology 24: 517533.Google Scholar
John, P., Cotterill, S., Richardson, L., Moseley, A., Stoker, G., Wales, C. and Smith, G. (2013) Nudge, Nudge, Think, Think. Experimenting with Ways to Change Civic Behaviour. London: Bloomsbury Academic.Google Scholar
Karlan, D. and List, J. A. (2007) Does Price Matter in Charitable Giving? Evidence from a Large-Scale Natural Field Experiment. American Economic Review 97(5): 17741793.CrossRefGoogle Scholar
Kastlunger, B., Dressler, S. G., Kirchler, E., Mittone, L. and Voracek, M. (2010) Sex Differences in Tax Compliance: Differentiating Between Demographic Sex, Gender-Role Orientation and Prenational Masculinization (2D:4D). Journal of Economic Psychology 31(4): 542552.Google Scholar
Kinsey, K. A. (1992) Deterrence and Alienation Effects of IRS Enforcement: An Analysis of Survey Data. In Slemrod J. (ed.), Why People Pay Taxes: Tax Compliance and Enforcement. Ann Arbor: University of Michigan Press, 259285.Google Scholar
Kirchler, E., Hoelzl, E. and Wahl, I. (2008) Enforced Versus Voluntary Tax Compliance: The “Slippery Slope” Framework. Journal of Economic Psychology 29(2): 210225.Google Scholar
Lamberton, C., De Neve, J.-E. and Norton, M. I. (2014) Eliciting Taxpayer Preferences Increases Tax Compliance. Harvard Business School Working Paper No. 14-106, Harvard Business School, Cambridge.Google Scholar
Martin, S. and Dolan, P. (2010) Dear Taxpayer, Congratulations! You’ve Won Your Money Back, Harvard Business Review, https://hbr.org/2010/12/dear-mr-taxpayer-congratulatio (accessed 27 April 2015).Google Scholar
McDermott, R. (2002) Experimental Methodology in Political Science. Political Analysis 10(4): 325342.Google Scholar
Meier, S. and Stutzer, A. (2008) Is Volunteering Rewarding in Itself? Economica 75(297): 3959.Google Scholar
Murphy, R. (2012) Closing the European Tax Gap. A Report for Group of the Progressive Alliance of Socialists & Democrats in the European Parliament. Norfolk, VA: Tax Research LLP.Google Scholar
Niederle, M. and Vesterlund, L. (2007) Do Women Shy Away from Competition? Do Men Compete Too Much? Quarterly Journal of Economics 122(3): 10671101.Google Scholar
Perez, L. and Humphreys, B. (2013) The “Who and Why” of Lottery: Empirical Highlights from the Seminal Economic Literature. Journal of Economic Surveys 27(5): 915940.Google Scholar
Seely, A. (2011) Hypothecated Taxation – Commons Library Standard Note, 2011, UK Parliament, http://www.parliament.uk/business/publications/research/briefing-papers/SN01480/hypothecated-taxation (accessed 29 April 2015).Google Scholar
Spicer, M. W. and Becker, L. A. (1980) Fiscal Inequity and Tax Evasion: An Experimental Approach. National Tax Journal 33(2): 171175.CrossRefGoogle Scholar
Steinmo, S. (1993) Taxation and Democracy: Swedish, British and American Approaches to Financing the Modern State. New Haven, CT: Yale University Press.Google Scholar
Stotsky, J. G. (1997) How Tax Systems Treat Men and Women Differently. Finance & Development 34(1): 3033.Google Scholar
Sussman, A. B. and Olivola, C. Y. (2011) Axe the Tax: Taxes are Disliked More than Equivalent Costs. Journal of Marketing Research 48(SPL): S91S101.Google Scholar
Svallfors, S. (2013) Government Quality, Egalitarianism, and Attitudes to Taxes and Social Spending: A European Comparison. European Political Science Review 5(3): 363380.Google Scholar
The Economist (2015) Hometown Dues, The Economist, 18 April.Google Scholar
Tilly, C. (2009) Extraction and Democracy. In Martin I. W., Mehrotra A. K. and Prasad M. (eds.), The New Fiscal Sociology. Taxation in Comparative and Historical Perspective. New York, NY: Cambridge University Press, 173182.Google Scholar
Timmons, J. F. and Garfias, F. (2015) Revealed Corruption, Taxation, and Fiscal Accountability: Evidence from Brazil. World Development 70: 1327.Google Scholar
Torgler, B. (2002) Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments. Journal of Economic Surveys 16(5): 657683.Google Scholar
Torgler, B. (2005) Tax Morale and Direct Democracy. European Journal of Political Economy 21: 525531.Google Scholar
Torgler, B. (2006) The Importance of Faith: Tax Morale and Religiosity. Journal of Economic Behavior & Organization 61(1): 81109.Google Scholar
Torgler, B. and Schneider, F. (2007) What Shapes Attitudes Toward Paying Taxes? Evidence from Multicultural European Countries. Social Science Quarterly 88(2): 443470.Google Scholar
UNDP (2010) Gender Equality and Poverty Reduction: Taxation. UNDP Issues Brief 1, UNDP, New York.Google Scholar
van Dijke, M. and Verboon, P. (2010) Trust in Authorities as a Boundary Condition to Procedural Fairness Effects on Tax Compliance. Journal of Economic Psychology 31: 8091.Google Scholar
Wahl, I., Muehlbacher, S. and Kirchler, E. (2010) The Impact of Voting on Tax Payments. Kyklos 63(1): 144158.Google Scholar
Wan, J. (2010) The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China. Review of Development Economics 14(3): 611624.Google Scholar
Wood, R. W. (2011) What’s Your IRS Audit Risk?, Forbes.Google Scholar

References

Alm, J., Cherry, T., Jones, M. and McKee, M. (2010) Taxpayer Information Assistance Services and Tax Compliance Behavior. Journal of Economic Psychology 31: 577586.Google Scholar
Alm, J., Jackson, B. R. and McKee, M. (1993) Fiscal Exchange, Collective Decision Institutions, and Tax Compliance. Journal of Economic Behavior and Organization 22: 285303.Google Scholar
Alm, J. and McKee, M. (2004) Tax Compliance as a Coordination Game. Journal of Economic Behavior and Organization 54: 297312.Google Scholar
Alm, J., Sanchez, I. and de Juan, A. (1995) Economic and Noneconomic Factors in Tax Compliance. Kyklos 48(1): 318.Google Scholar
Bayer, R.-C. and Sutter, M. (2009) The Excess Burden of Tax Evasion – An Experimental Detection-Concealment Contest. European Economic Review 53(5): 527543.Google Scholar
Bosco, L. and Mittone, L. (1997) Tax Evasion and Moral Constraints: Some Experimental Evidence. Kyklos 50(3): 297324.Google Scholar
Cadsby, C. B., Maynes, E. and Trivedi, V. U. (2006) Tax Compliance and Obedience to Authority at Home and in the Lab: A New Experimental Approach. Experimental Economics 9: 343359.Google Scholar
Casey, J. T. and Scholz, J. T. (1991) Beyond Deterrence: Behavioral Decision Theory and Tax Compliance. Law and Society Review 25(4): 821843.Google Scholar
Chung, J. and Trivedi, V. U. (2003) The Effect of Friendly Persuasion and Gender on Tax Compliance Behavior. Journal of Business Ethics 47(2): 133145.Google Scholar
Coricelli, G., Joffily, M., Montmarquette, C. and Villeval, M. C. (2010) Cheating, Emotions, and Rationality: An Experiment on Tax Evasion. Experimental Economics 13: 226247.Google Scholar
Cummings, R. G., Martinez-Vazquez, J., McKee, M. and Torgler, B. (2009) Tax Morale Affects Tax Compliance: Evidence from Surveys and an Artefactual Field Experiment. Journal of Economic Behavior and Organization 70: 447457.Google Scholar
Gërxhani, K. and Schram, A. (2006) Tax Evasion and Income Source: A Comparative Experimental Study. Journal of Economic Psychology 27: 402422.Google Scholar
Guth, W., Levati, M. V. and Sausgruber, R. (2005) Tax Morale and (De-)Centralization: An Experimental Study. Public Choice 125: 171188.Google Scholar
Hasseldine, J. and Hite, P. A. (2003) Framing, Gender and Tax Compliance. Journal of Economic Psychology 24: 517533.Google Scholar
Heinemann, F. and Kocher, M. G. (2010) Tax Compliance Under Tax Regime Changes(10-020), Technical Report, Centre for European Economic Research.Google Scholar
Kastlunger, B., Dressler, S. G., Kirchler, E., Mittone, L. and Voracek, M. (2010) Sex Differences in Tax Compliance: Differentiating Between Demographic Sex, Gender-Role Orientation, and Prenatal Masculinization (2D:4D). Journal of Economic Psychology 31: 542552.Google Scholar
Kastlunger, B., Kirchler, E., Mittone, L. and Pitters, J. (2009) Sequences of Audits, Tax Compliance, and Taxpaying Strategies. Journal of Economic Psychology 30: 405418.Google Scholar
Kirchler, E., Muehlbacher, S., Hoelzl, E. and Webley, P. (2009) Effort and Aspirations in Tax Evasion: Experimental Evidence. Applied Psychophysiology: An International Review 58(3): 488507.Google Scholar
Maciejovsky, B., Kirchler, E. and Schwarzenberger, H. (2007) Misperception of Chance and Loss Repair: On the Dynamics of Tax Compliance. Journal of Economic Psychology 28: 678691.Google Scholar
Spicer, M. and Hero, R. (1985) Tax Evasion and Heuristics. Journal of Public Economics 26: 263267.Google Scholar
Spicer, M. W. and Becker, L. A. (1980) Fiscal Inequity and Tax Evasion: An Experimental Approach. National Tax Journal 33(2): 171175.Google Scholar
Trivedi, V. U., Shehata, M. and Lynn, B. (2003) Impact of Personal and Situational Factors on Taxpayer Compliance: An Experimental Analysis. Journal of Business Ethics 47(3): 175197.Google Scholar
van Dijke, M. and Verboon, P. (2010) Trust in Authorities as a Boundary Condition to Procedural Fairness Effects on Tax Compliance. Journal of Economic Psychology 31: 8091.Google Scholar
Wahl, I., Kastlunger, B. and Kirchler, E. (2010a) Trust in Authorities and Power to Enforce Tax Compliance: An Empirical Analysis of the “Slippery Slope Framework”. Law and Policy 32(4): 383406.Google Scholar
Wahl, I., Muehlbacher, S. and Kirchler, E. (2010b) The Impact of Voting on Tax Payments. Kyklos 63(1): 144158.Google Scholar