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Rewarding good taxpayers: an effective mechanism?

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  • Pedro A. Cabra-Acela

    (Princeton University)

Abstract

This paper studies the conditions under which rewarding compliant taxpayers is an optimal mechanism to improve tax collection. The theoretical model suggests that when auditing contributors and evading are both costly, rewarding tax compliance is an effective strategy to increase the government’s profit. I provide empirical evidence from the Argentinian provinces’ rewards and tax policy variation. Where the data suggest that theoretical conditions hold, there is a positive effect in the real estate per-capita tax collection ranging from 0.4 to more than 2 standard deviations. This result has important policy implications, mapping the private evasion cost and the price of traditional policy tools as the main determinants of positive incentives’ effectiveness.

Suggested Citation

  • Pedro A. Cabra-Acela, 2023. "Rewarding good taxpayers: an effective mechanism?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(6), pages 1688-1717, December.
    • Handle: RePEc:kap:itaxpf:v:30:y:2023:i:6:d:10.1007_s10797-022-09771-9
    DOI: 10.1007/s10797-022-09771-9
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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