Happy Taxation: Increasing Tax Compliance Through Positive Rewards?

Can governments increase tax compliance by rewarding honest taxpayers? We conduct a controlled laboratory experiment comparing tax compliance under a ‘deterrence’ baseline to tax compliance under two ‘reward’ treatments: a ‘donation’ treatment giving taxpayers a say in the spending purposes of their payments, and a ‘lucky’ treatment giving taxpayers the (highly unlikely) chance of winning a lottery. The reward treatments significantly affect tax behavior but not in a straight forward way. While female participants alter their behavior as expected and comply somewhat more, men strongly react in the opposite way: They evade a much higher percentage of taxes than under the baseline. Apparently, there is no one-size-fits-all approach to boost tax compliance.