The effects of rewards on tax compliance decisions

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: arqus Discussion Paper ; No. 163

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Household Saving; Personal Finance ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
• Subject: tax evasion ; tax compliance ; redistribution of taxes ; tax affectation ; rewarding ; public good ; behavioral economics ; experimental economics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fochmann, Martin ; Kroll, Eike B.
• Event: Veröffentlichung
• (who): Arbeitskreis Quantitative Steuerlehre (arqus)
• (where): Berlin
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/97270
• Last update: 10.03.2025, 11:44 AM CET