Positive vs. Negative Incentives for Compliance: Evaluating a Randomized Tax Holiday in Uruguay

54 Pages Posted: 27 Aug 2015

See all articles by Thad Dunning

Thad Dunning

University of California, Berkeley - Center on the Politics of Development

Felipe Monestier

Instituto de Ciencia Política - Universidad de la República, Uruguay

Rafael Piñeiro

Universidad Católica del Uruguay

Fernando Rosenblatt

Escuela de Ciencia Política - Universidad Diego Portales

Guadalupe Tuñón

University of California, Berkeley, College of Letters & Science, Charles and Louise Travers Department of Political Science, Students

Date Written: August 24, 2015

Abstract

Developing states face enduring obstacles to generating tax revenue through sanctions for non-compliance. Can they boost compliance by instead offering positive inducements to citizens who pay their tax bills? We study the effects of a randomized lottery in Montevideo, Uruguay, in which the municipal government raffles tax holidays to good taxpayers who are current on past payments -- a type of lottery that is increasingly popular among municipal governments in the developing world. To compare the influence of negative incentives for tax compliance, such as fines and punishment for non-payment, with the positive inducement provided by the lottery, and to assess the program's incentive effects on delinquent taxpayers, we also use field and survey experiments in which we inform eligible and ineligible taxpayers about the rebate lottery, which has not been effectively advertised by the government. Taking advantage of access to over-time individual tax payment records as well as survey data, we find weak effects of the government's program on tax compliance, as well as citizens' attitudes towards taxation and governance. Our results underscore the structural difficulties of eliminating non-compliance through either negative or positive inducements.

Keywords: tax compliance; lottery; positive vs. negative incentives; rewards vs. punishments; habit

JEL Classification: O1, P16, H26

Suggested Citation

Dunning, Thad and Monestier, Felipe and Piñeiro, Rafael and Rosenblatt, Fernando and Tuñón, Guadalupe, Positive vs. Negative Incentives for Compliance: Evaluating a Randomized Tax Holiday in Uruguay (August 24, 2015). Available at SSRN: https://ssrn.com/abstract=2650105 or http://dx.doi.org/10.2139/ssrn.2650105

Thad Dunning (Contact Author)

University of California, Berkeley - Center on the Politics of Development ( email )

University of California
221 Moses Hall
Berkeley, CA 94720-2308
United States

Felipe Monestier

Instituto de Ciencia Política - Universidad de la República, Uruguay ( email )

Facultad de Ciencias Sociales
Constituyente 1502
Montevideo, 11200
Uruguay

Rafael Piñeiro

Universidad Católica del Uruguay ( email )

Av 8 de Octubre
Montevideo, Montevideo
Uruguay

Fernando Rosenblatt

Escuela de Ciencia Política - Universidad Diego Portales ( email )

Facultad de Ciencias Sociales e Historia
Ejército 333
Santiago
Chile

Guadalupe Tuñón

University of California, Berkeley, College of Letters & Science, Charles and Louise Travers Department of Political Science, Students ( email )

210 Barrows Hall
Berkeley, CA 94720
United States

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