A Self-Funding Reward Mechanism for Tax Compliance

37 Pages Posted: 25 Aug 2015

See all articles by Enrique Fatas

Enrique Fatas

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS); University of Valencia - LINEEX

Daniele Nosenzo

University of Nottingham

Martin Sefton

University of Nottingham - School of Economics

Daniel John Zizzo

University of Queensland - School of Economics

Date Written: August 25, 2015

Abstract

We compare in a laboratory experiment two audit-based tax compliance mechanisms that collect fines from those found non-compliant. The mechanisms differ in the way fines are redistributed to individuals who were either not audited or audited and found to be compliant. The first, as is the case in most extant tax systems, does not discriminate between the un-audited and those found compliant. The second targets the redistribution in favor of those found compliant. We find that targeting increases compliance when paying taxes generates a social return. We do not find any increase in compliance in a control treatment where individuals audited and found compliant receive symbolic rewards. It is not the mere assigning of rewards, but the material incentives inherent in the rewards that improve compliance. We conclude that existing tax mechanisms have room for improvement by rewarding financially those audited and found compliant.

Keywords: tax evasion, rewards, audits

JEL Classification: C91, J26

Suggested Citation

Fatas, Enrique and Nosenzo, Daniele and Sefton, Martin and Zizzo, Daniel John, A Self-Funding Reward Mechanism for Tax Compliance (August 25, 2015). Available at SSRN: https://ssrn.com/abstract=2650265 or http://dx.doi.org/10.2139/ssrn.2650265

Enrique Fatas

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom

University of Valencia - LINEEX ( email )

Campus Tarongers
E-46022 Valencia
Spain
+34.963.828.643 (Phone)
+963.828.415 (Fax)

Daniele Nosenzo

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Martin Sefton

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Daniel John Zizzo (Contact Author)

University of Queensland - School of Economics ( email )

St Lucia
Brisbane, Queensland 4072
Australia

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