The Effects of Rewards on Tax Compliance Decisions

28 Pages Posted: 16 May 2014

See all articles by Martin Fochmann

Martin Fochmann

University of Cologne

Eike B. Kroll

Otto-von-Guericke University Magdeburg

Date Written: May 16, 2014


We analyze how the redistribution of tax revenues influences tax compliance behavior by applying different reward mechanisms. In our experiment, subjects have to make two decisions. In the first stage, subjects decide on the contribution to a public good. In the second stage, subjects declare their income from the first stage for taxation. Our main results are threefold: First, from an aggregated perspective, rewards have a negative overall effect on tax compliance. Second, we observe that rewards affect the decision of taxpayers asymmetrically. In particular, rewards have either no effect (for those who are rewarded) or a negative effect (for those who are not rewarded) on tax compliance. Thus, if a high compliance rate of taxpayers is preferred, rewards should not be used by the tax authority. Third, we find an inverse u-shaped relationship between public good contribution and tax compliance. In particular, up to a certain level, tax compliance increases with subjects’ own contributions to the public good. Above this level, however, tax compliance decreases with the public good contribution.

Keywords: tax evasion, tax compliance, redistribution of taxes, tax affectation, rewarding, public good, behavioral economics, experimental economics

JEL Classification: C91, D14, H24

Suggested Citation

Fochmann, Martin and Kroll, Eike B., The Effects of Rewards on Tax Compliance Decisions (May 16, 2014). Available at SSRN: or

Martin Fochmann (Contact Author)

University of Cologne ( email )

Behavioral Accounting/Taxation/Finance
Cologne, 50923


Eike B. Kroll

Otto-von-Guericke University Magdeburg ( email )

Universitätsplatz 2
Magdeburg, Sachsen-Anhalt 39104

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