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A self-funding reward mechanism for tax compliance

Author

Listed:
  • Enrique Fatas

    (University of East Anglia)

  • Daniele Nosenzo

    (University of Nottingham)

  • Martin Sefton

    (University of Nottingham)

  • Daniel John Zizzo

    (Newcastle University)

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 unaudited 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.

Suggested Citation

  • Enrique Fatas & Daniele Nosenzo & Martin Sefton & Daniel John Zizzo, 2015. "A self-funding reward mechanism for tax compliance," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-16, School of Economics, University of East Anglia, Norwich, UK..
    • Handle: RePEc:uea:wcbess:15-16
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    More about this item

    Keywords

    tax evasion; rewards; audits;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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