Article

The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China

Article

The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China

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Abstract

We examine the validity of a new system of taxation called lottery receipts in China theoretically and empirically. Tax collection is difficult as the government difficultly monitors the actual economic dealings. To bring out the private information on transaction known only to a seller and a buyer, the government has set up a lottery receipt system which has been tried out in many areas. If the net revenue from a lottery receipt is invested in pure public goods, the lottery receipt will been purchased even if the consumer has expected quasi-linear utility. By issuing a lottery receipt, the government may prevent tax evasion caused by conspiracies between consumers and firms and collect tax effectively. Estimation is performed based on panel data for different periods from a total of 37 districts in Beijing and Tianjin during 1998-2003. The lottery receipt experiment has significantly raised the business tax, the growths of business tax and total tax revenues.

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... The experiment has been widely reported on by the media in China. According to Wan [10] and to the sources quoted therein, it has had a positive impact upon business tax 16 revenue and upon the growth of total tax revenue. ...
... Note that (24) reduces to (10) under perfect competition, as in this case λ = 0 = µ. It turns out that backward overshifting is larger under imperfect than under perfect competition if 0 < [1 + µ (1 − E)] < 1 holds, i.e., if: ...
Article
Monetary or in-kind transfers can be used as an incentive for consumers to request o.cial receipts for goods they purchase. A novel system of in-kind transfers in the form of lottery tickets has recently been introduced in China. Price subsidies (often granted through tax deductions or refunds) are also widely used. This paper extends the standard model of commodity tax evasion for firms (in a competitive market and under the conjectural variation approach) in order to describe the e.ects of subsidies on tax evasion and in terms of incidence and of government revenue. The role of search costs and of enforcement costs is also taken into account.
... While this move will reduce the rewards to consumers, it is a good indicator of the increasing popularity of the system, for such a tax would only make sense with a sizeable tax base. According to Wan (2006) and to the sources quoted therein, the lottery has had a positive impact upon business tax 4 revenue and upon the growth of total tax revenue. The lottery approach is of course just one of the many tools used in China for fighting tax evasion. ...
... For a description of this system and an evaluation of its effects, seeWan (2006).4 This is a turnover tax paid on gross revenue from sales. ...
... According to the author, during the period 1998 -2002 the sales tax collection rose by 17% in the Chinese provinces that introduced LTRP, and the ratio between lottery prizes paid by the government and 2 See wikipedia.org/wiki/Uniform Invoice lottery 3 For details on the Chinese lottery see Wan (2010) 4 For detailed information see the Nota Fiscal Paulista http://www.nfe.fazenda.gov.br/ 5 See http://www.loteriaelectronicapr.com/ 6 See http://www.finance.gov.sk/En/Default.aspx?CatID=19id=4 7 One limitation of the studies discussed below is that the effect of LTRP is estimated using data that cover a period of time of only a few years. ...
... One possibility to overcome this problem that has been applied in China involves initially implementing LTRP only in limited geographical areas within the country. The information gathered from these reduced scale pilot LTRPs are subsequently used to better calibrate the lottery prizes before LTRP is applied countrywide (see Wan 2010). Additionally, a government introducing LTRP may act conservatively and initially choose a small δ, therefore limiting the risk of paying a lottery prize much larger than the net increase in tax revenue generated by the lottery and revising the level of δ in subsequent periods. ...
Article
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The aim of this work is to explain the success registered by a zero-cost policy against sales tax evasion based on a lottery mechanism which has been recently implemented in a growing number of countries. It is suggested how the specific sales tax evasion situation in which this policy has been applied could be traced back to a general public goods framework. After a discussion of the empirical evidences showing the policy success, we propose a theoretical model incorporating Tversky and Kahneman’s (1992) Cumulative Prospect Theory insights. Furthermore, a test for verifying the applicability of the lottery ticket policy in specific contexts is developed. Such a test could represent a useful ex-ante indicator of the expected success of the lottery ticket policy for policymakers interested in increasing the private provision of public goods.
... For instance, Taiwan operates a receipt-based tax lottery to increase sales tax (VAT) compliance since the 1950s. China introduced a VAT-lottery in the 1990s (Wan 2010). More recently, some European countries followed suit including Malta, Slovakia, Portugal, and Romania ii (Fooken et al. 2014). ...
... There is limited research on tax lotteries. For instance, Wan presents observational evidence to suggest that the Chines lottery has increased tax revenues (Wan 2010). The largely anecdotal research on Europe shows mixed results by contrast. ...
Article
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Can governments increase tax compliance by rewarding honest taxpayers? We conducted a controlled laboratory experiment comparing tax compliance under a “deterrence” baseline with 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 affected tax behaviour but not in a straightforward manner. Although female participants altered their behaviour as expected and complied somewhat more, men strongly reacted in the opposite manner: they evaded a much higher percentage of taxes than under the baseline. Apparently, there is no one-size-fits-all approach to boost tax compliance.
... The evidence from the microlevel data suggests that the LRE would encourage consumers to ask for and receive official receipts. These results at the household level support findings from previous field studies ( Chen, 1990;Tang, 2000) as well as empirical analyses at the county level (Wan, 2010). ...
... and the ratio of s *** to t *** is, s *** t *** ¼ 1 À 2 0:5 2 ¼ 29:29%: Fig. 6 shows the relationship between subsidy and net tax revenue. Because we assume that the consumer has a linear preference for private goods, the above ratio of subsidy to tax is equivalent to the ratio of lottery prize to tax revenue in Wan (2010), in which the nationwide ratio in China in 2002 was about 3.00%. However, given the very specific assumptions and that we do not consider the stochastic aspect of the lottery or the crowding-out effect of "moral" factors as argued by Frey (1997), we cannot simply conclude that the ratio was too low in the case of China. ...
Article
To solicit information about transactions known only to firms and consumers, many governments have set up a lottery receipt experiment (LRE). Field studies and household surveys have shown that LREs in China have significantly improved tax declarations by asking for official receipts. We show that if the government gives a subsidy to a consumer to buy information in a competitive market, the consumer will declare the tax so that the firm cannot cheat the government. Thus, both the cheating and auditing costs can be saved and Pareto-efficient taxation without collusive evasion becomes practicable under specific conditions. A cashless payment system can also work as a lottery receipt system by curbing tax evasion.
... Nonetheless, VAT lotteries have been largely overlooked in the literature (Delgado and Sequeira in Fooken et al., 2014). Admittedly, there exist studies (Naritomi, 2015;Wan, 2010) that have investigated monetary reward systems in the form of tax lotteries and their effectiveness in terms of costs and benefits. However, surprisingly, the impact of tax lotteries on consumers' attitudes to cooperate with tax authorities has not yet been examined. ...
... China, Korea, the Philippines, South Korea, Taiwan, among other countries, also run monetary reward systems in the form of lottery schemes. The general conclusion seems to be that they promote tax compliance (Naritomi, 2015;Wan, 2010). ...
Article
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Purpose The Portuguese tax authority implemented a lottery to encourage citizens to request invoices as a strategy to fight value-added tax (VAT) evasion. As the law does not require citizens to request sales invoices with the consumers’ tax number, doing so is a form of voluntary cooperation in tracking down tax evaders. The purpose of this paper is to understand why ordinary citizens decide to join forces with tax authorities in the fight against VAT evasion by requesting invoices with their tax identification number. Design/methodology/approach An empirical study was conducted to explore the underlying motivation for Portuguese consumers to request sales invoices with their personal tax identification. The study combines quantitative and qualitative data. Findings The results from this study show that rewarding citizens is clearly a factor to be considered in any policy to maximize citizens’ cooperation in tracking down tax evaders. They indicate that fiscal benefits have a stronger effect on the request of invoices than the lottery and that it is necessary to promote good governance and justice. Practical implications Findings should be used to inform a cost-effective public policy that takes into account citizens’ concerns and combine deterrent measures and rewards in the form of tax benefits, rather than tax lotteries. Originality/value This paper provides new insights into VAT lotteries, which seem to be increasingly favored by policy makers but are an area under-researched. By recommending a course of action to maximize citizens’ cooperation in tracking down tax evaders, the paper provides useful practical implications and is a contribution for the study of VAT evasion policies.
... According to the rules of the program, registered consumers have also the right to receive part of the ICMS paid by the seller as tax rebate when their tax identifier numbers (CPF) are included in the electronic sales receipts. Similar initiatives relying on consumer auditing schemes were proposed in the European Union and in China (Wan, 2010). The effectiveness of such programs has been discussed in Fatas, Nosenzo, Sefton, and Zizzo (2015) and Brockmann, Genschel, and Seelkopf (2016). ...
Article
Full-text available
We consider a new, flexible and easy-to-implement method to estimate thecausal effects of an intervention on a single treated unit when a control group is not available and which nests previous proposals in the literature. It is a two-step methodology where in the first stage, a counterfactual is estimated based on a large-dimensional set of variables from a pool of untreated units by means of shrinkage methods, such as the least absolute shrinkage and selection operator (LASSO). In the second stage, we estimate the average intervention effect on a vector of variables, which is consistent and asymptotically normal. Our results are valid uniformly over a wide class of probability laws. We show that these results hold even when the exact date of the intervention is unknown. Tests for multiple interventions and for contamination effects are derived. By a simple transformation of the variables, it is possible to test for multivariate intervention effects on several moments of the variables of interest. Existing methods in the literature usually test for intervention effects on a single variable and assume that the time of the intervention is known. In addition, high-dimensionality is frequently ignored and inference is either conducted under a set of more stringent hypotheses and/or by permutation tests. A Monte Carlo experiment evaluates the properties of the method in finite samples and compares it with other alternatives. As an application, we evaluate the effects on inflation, GDP growth, retail sales and credit of an anti tax-evasion program.
... For details see, for instance,Wan (2010) orGordon and Li (2009).Arbex and Mattos (2013) is a theoretical study of the use of sales tax rebates to buyers in order to facilitate tax evasion.Maeda (2008) analyses the entertainment aspect of the issued lottery tickets.3 Examples of 'designed' lotteries, that is, of lotteries where the winning probabilities are not just the number of tickets bought over the total number of tickets, are the German or Austrian Klassenlotterien and the United Kingdom Premium Bonds. ...
Article
Full-text available
We revisit the classical result that taxation of private consumption is distortionary and therefore precludes the efficient provision of public goods. We introduce a nonlinear consumption tax which we call a `tax lottery'. Under this scheme, an ad-valorem consumption tax is supplemented with a lottery in which consumers can win cash prizes. The winning probabilities in this lottery depend on all consumers' private good consumption decisions. We show that for a given ad-valorem tax, an appropriately designed lottery can implement an efficient allocation in pure-strategy Nash equilibrium. The lottery component corrects the distortion in private consumption due to the ad-valorem tax, while the resulting tax revenue is sufficient to efficiently provide the public good and pay out the lottery prize.
... Such a system has been used in Taiwan, China; Korea; China; and Puerto Rico. Wan (2010) compares changes in tax revenues in districts in China which introduced this reform to those which didn't, and finds the introduction of this tax receipt lottery increased sales tax revenue by 17 percent. ...
Article
The majority of microenterprises in most developing countries remain informal despite more than a decade of reforms aimed at making it easier and cheaper for them to formalize. This paper summarizes the evidence on the effects of entry reforms and related policy actions to promote firm formalization. Most of these policies result in only a modest increase in the number of formal firms, if there is any increase at all. Most informal firms appear to not benefit on net from formalizing. As a consequence, ease of formalization along will not induce most of them to become formal. Increased enforcement of rules can increase formality. Although there is a fiscal benefit of doing this with larger informal firms, it is unclear whether there is a public rationale for attempting to formalize subsistence enterprises.
... For details see, for instance,Wan (2010) orGordon and Li (2009).Arbex and Mattos (2013) is a theoretical study of the use of sales tax rebates to buyers in order to facilitate tax evasion.Maeda (2008) analyses the entertainment aspect of the issued lottery tickets.3 Examples of 'designed' lotteries, that is, of lotteries where the winning probabilities are not just the number of tickets bought over the total number of tickets, are the German or Austrian Klassenlotterien and the United Kingdom Premium Bonds. ...
... An analysis of countries which have introduced similar lotteries does not provide clear-cut evidence on their impact on tax revenues. In the case of Chinese Taipei and China, an increase in VAT revenues was recorded soon after the introduction of the lottery (Wan, 2006). However, the lottery was introduced in an environment which differed considerably from the Slovak Republic's (e.g. the use of cash registers was limited). ...
Article
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The Slovak Republic was among the fastest growing OECD economies in the last decade. It is broadly recognised that the 2004 tax reform contributed to this success. Ten years after this fundamental reform, however, the time has come to re-evaluate some of the key characteristics of the Slovak tax system. The Slovak economy faces multiple challenges including an ageing population, a persistently high unemployment rate, significant regional disparities, skills gaps and risks related to the increasing international competition for mobile capital. Can the Slovak tax system in its present form prevail against these headwinds? The paper shows that the current tax system suffers from weaknesses that constrain its capacity to raise additional revenues and to create the conditions for inclusive and sustainable economic growth. Although measures have recently been introduced to address some of these challenges, additional tax reforms and a further strengthening of the tax administration will be needed.
... 10 For instance, Argentina, Bolivia, Brazil, China, Chile, Colombia, Indonesia, Italy, Portugal, Puerto Rico, South Korea and Slovakia, among other countries, have introduced policies to address the enforcement problem downstream through monetary incentives -through tax refunds, lotteries, or fines -for consumers to request receipts ( Fooken et al. 2015;Bird 1992;Cowell 2004;Fabbri 2015;Marchese 2009). Wan (2010) argues that a program that turns receipts into lottery tickets in China was effective in raising tax revenue, but the evidence for such policies is mixed (Barroso & Cortez 2007;Mattos et al. 2013). ...
Working Paper
Full-text available
... Furthermore, according to the rules of the 15 Integrated System of Tax Payments for Micro and Small Enterprises program, registered consumers have the right to receive part of the ICMS paid by the seller, as tax rebate, when their tax identifier numbers (CPF) are included in the electronic sales receipts. Similar initiatives relying on consumer auditing schemes were proposed in the European Union and in China; see, for example, Wan (2010). The effectiveness of such programs has been discussed in Fatas, Nosenzo, Sefton, and Zizzo (2015) and Brockmann, Genschel, and Seelkopf (2016). ...
Technical Report
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We consider a new, flexible and easy-to-implement method to estimate causal effects of an intervention on a single treated unit and when a control group is not readily available. We propose a two-step methodology where in the first stage a counterfactual is estimated from a large-dimensional set of variables from a pool of untreated units using shrinkage methods, such as the Least Absolute Shrinkage Operator (LASSO). In the second stage, we estimate the average intervention effect on a vector of variables, which is consistent and asymptotically normal. Our results are valid uniformly over a wide class of probability laws. Furthermore, we show that these results still hold when the exact date of the intervention is unknown. Tests for multiple interventions and for contamination effects are also derived. By a simple transformation of the variables of interest, it is also possible to test for intervention effects on several moments (such as the mean or the variance) of the variables of interest. A Monte Carlo experiment evaluates the properties of the method in finite samples and compares it with other alternatives such as the differences-indifferences , factor and the synthetic control methods. In an application we evaluate the effects on inflation of an anti tax evasion program.
... Furthermore, according to the rules of the program, registered consumers have the right to receive part of the ICMS paid by the seller, as tax rebate, when their tax identifier numbers (CPF) are included in the electronic sales receipts. Similar initiatives relying on consumer auditing schemes were proposed in the European Union and in China; see, for example, Wan (2010). The effectiveness of such programs has been discussed in Fatas, Nosenzo, Sefton, and Zizzo (2015) and Brockmann, Genschel, and Seelkopf (2016). ...
Article
We consider a new method to estimate causal effects when a treated unit suffers a shock or an intervention, such as a policy change, but there is not a readily available control group or counterfactual. We propose a two-step approach where in the first stage an artificial counterfactual is estimated from a large-dimensional set of variables from pool of untreated units (“donors pool”) using shrinkage methods, such as the Least Absolute Shrinkage Operator (LASSO). In the second stage, we estimate the average intervention effect on a vector of variables belonging to the treated unit, which is consistent and asymptotically normal. Our results are valid uniformly over a wide class of probability laws. Furthermore, we show that these results still hold when the date of the intervention is unknown and must be estimated from the data. Tests for multiple interventions and for contamination effects are also derived. By a simple transformation of the variables of interest, it is also possible to test for intervention effects on several moments (such as the mean or the variance) of the variables of interest. Finally, we can disentangle the actual intervention effects from confounding factors that usually bias “before-and-after” estimators. A detailed Monte Carlo experiment evaluates the properties of the method in finite samples and compares our proposal with other alternatives such as the differences-in-differences, factor models and the synthetic control method. An empirical application to evaluate the effects on inflation of a new anti tax evasion program in Brazil is considered. Our methodology is inspired by different branches of the literature such as: the Synthetic Control method, the Global Vector Autoregressive models, the econometrics of structural breaks, and the counterfactual analysis based on macro-econometric and panel data models.
... Furthermore, according to the rules of the program, registered consumers have the right to receive part of the ICMS paid by the seller, as tax rebate, when their tax identifier numbers (CPF) are included in the electronic sales receipts. Similar initiatives relying on consumer auditing schemes were proposed in the European Union and in China; see, for example, Wan (2010). The effectiveness of such programs has been discussed in Fatas, Nosenzo, Sefton, and Zizzo (2015) and Brockmann, Genschel, and Seelkopf (2016). ...
Technical Report
Full-text available
We consider a new, flexible and easy-to-implement method to estimate causal effects of an intervention on a single treated unit and when a control group is not readily available. We propose a two-step methodology where in the first stage a counterfactual is estimated from a large-dimensional set of variables from a pool of untreated units using shrinkage methods, such as the Least Absolute Shrinkage Operator (LASSO). In the second stage, we estimate the average intervention effect on a vector of variables, which is consistent and asymptotically normal. Our results are valid uniformly over a wide class of probability laws. Furthermore, we show that these results still hold when the exact date of the intervention is unknown. Tests for multiple interventions and for contamination effects are also derived. By a simple transformation of the variables of interest, it is also possible to test for intervention effects on several moments (such as the mean or the variance) of the variables of interest. A Monte Carlo experiment evaluates the properties of the method in finite samples and compares it with other alternatives such as the differences-indifferences , factor and the synthetic control methods. In an application we evaluate the effects on inflation of an anti tax evasion program.
... The main contribution, however, is to the literature on the nexus of information and enforcement for business taxation (e.g. Almunia and Lopez-Rodriguez 2018;Best et al. 2015;Carrillo et al. 2017;Slemrod et al. 2017;Pomeranz 2015;Wan 2010), which has largely focused on the compliance effects of tax enforcement. ...
Preprint
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This paper shows that tax enforcement can increase employment. I consider enforcement policies aimed at increasing the issuance of verifiable sales receipts, which reduces unregistered sales and therefore tax evasion by firms. At first glance, the associated increase in the tax burden should negatively impact employment. I argue, however, that tax enforcement of this form can also help firms monitor their employees. If employees can divert some of the unregistered sales from the firm to themselves, then tax enforcement can increase employment by reducing diversion. To test this hypothesis, I use administrative data and exploit quasi-experimental variation from a tax enforcement intervention in Por-tugal. The results support the diversion channel and suggest that the enforcement reform did in fact increase employment.
... For details see, for instance,Wan (2010) orGordon and Li (2009).Arbex and Mattos (2013) is a theoretical study of the use of sales tax rebates to buyers in order to facilitate tax evasion.Maeda (2008) analyses the entertainment aspect of the issued lottery tickets.3 Examples of 'designed' lotteries, that is, of lotteries where the winning probabilities are not just the number of tickets bought over the total number of tickets, are the German or Austrian Klassenlotterien and the United Kingdom Premium Bonds. ...
... 10 For instance, Argentina, Bolivia, Brazil, China, Chile, Colombia, Indonesia, Italy, Portugal, Puerto Rico, South Korea, and Slovakia, among other countries, have introduced policies to address the enforcement problem downstream through monetary incentives (through tax refunds, lotteries, or fines) for consumers to request receipts (Fooken, Hemmelgarn, and Herrmann 2015;Bird 1992;Cowell 2004;Fabbri 2015;Marchese 2009). Wan (2010) argues that a program that turns receipts into lottery tickets in China was effective in raising tax revenue, but the evidence for such policies is mixed (Barroso and Cortez 2007;Mattos, Rocha, and Toporcov 2013). increase, offsetting to a large extent the profit change from more accurate revenue reporting. ...
Article
To investigate the enforcement value of third-party information on potentially collusive taxpayers, I study an anti-tax evasion program that rewards consumers for ensuring that firms report sales and estab-lishes a verification system to aid whistle-blowing consumers in São Paulo, Brazil (Nota Fiscal Paulista). Firms reported sales increased by at least 21 percent over 4 years. The results are consistent with fixed costs of concealing collusion, increased detection probability from whistle-blower threats, and with behavioral biases associated with lot-teries amplifying the enforcement value of the program. Although firms increased reported expenses, tax revenue net of rewards increased by 9.3 percent.
... The expected value was tiny due to very long odds, meaning an equivalent fixed incentive would be ineffective. However, the disproportionate value customers put on the lottery meant they asked for their receipt, putting the sale on record and making it harder for retailers to evade tax (Wan, 2010). ...
Chapter
Conservation Research, Policy and Practice - edited by William J. Sutherland April 2020
... Wilks, Cruz and Sousa [25] claim that these fiscal benefits helped decrease the VAT gap from 16% in 2013 to 12% in 2014, when the lottery was introduced. Similarly, Brazil and China introduced a tax lottery with the aim to encourage VAT compliance [26,27]. ...
Article
Full-text available
The value added tax is an important part of revenues of the European Union and its Member States. The aim of the paper is to statistically analyse the extent of positive impact of selected legislative measures introduced in the fight against tax evasion and discuss subsequently the sustainability of the current value added tax system in the European context. The analysis was conducted for the Czech and Slovak Republics, two traditionally strong trading partners, and for an important commodity, copper. In the analysis, regression methods applied to official time series data on copper export from the Czech Republic to Slovakia were employed together with appropriate statistical tests to detect potential significance of the new legislative tools, the value added tax control statement and reverse charge mechanism. Moreover, the study considers fundamental economic factors that affect foreign trade in parallel. Based on the analysis, there is sound evidence that the major historical turnaround experienced by the time series took place due to the then forthcoming legislative measures that were to restrain the possibility of carousel frauds. The results confirm the positive impact of the measures and also suggest the necessity of more systematic changes in the tax system.
... In China, the use of lotteries has shown to be an effective measure to increase revenue and decrease evasion. An empirical examination employing six-year data from 37 districts in Beijing and Tianjin indicated that sales tax revenue was significantly higher (over 17.1 percent), and the real growth rates of sales tax and total tax revenues were significantly higher (over 21.5 percent and over 10.4 percent, respectively) in areas where the lottery took place relative to those that did not implement the lottery (Wan, 2010). ...
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This paper analyses and compares two different groups of tools, the first to encourage the use of invoices (or payment systems) and the second to refund the VAT to low-income individuals. The analysis contributes to the existing literature by providing a clear characterization between these two groups of tools that are too often misunderstood and offers clear guidance to policymakers on the benefits and pitfalls of them based on available empirical studies and novel data analysis. Briefly, the first group includes a set of regressive and distortive tools (such as, allowing deducting the VAT paid on personal consumption from the PIT and reducing the VAT rate for using electronic means of payments or registration), while the second group includes tools that are less distortionary and improve income distribution (tax credits and VAT rate reduction targeted only at low-income individuals). This paper also finds that allowing the deduction of personal consumption against the PIT’s taxable base (i) did not impact positively the VAT revenue in Guatemala and (ii) worsens the income distribution in Ecuador.
Chapter
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The goal of this paper is to assess the impact of consumers' incentives to building renovations - introduced in Italy in 1997 by means of tax reimbursements - on construction sector's economic activity. Our analysis - which absent any sectional variability in the policy under scrutiny, identifies its impact by taking advantage of a longitudinal variation in its generosity within a context of no variation in the remainder of the relevant legislation and of no autonomous trends in the dependent variable - proves that reducing the number of installments of the reimbursement plans enhanced in 2003 the number of renovations by 0.026 squared meters per inhabitant. Based on this result, the recent changes occurred in the relevant legislation, which were expected to have a stimulus impact on Italian economy, can be more easily interpreted as a restrictive policy, thus casting serious doubts on the extremely positive comments which have been put forward at the institutional level.
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In this article we examine the effectiveness of bonuses and fines in an “inspection game,” where costly inspection allows an authority to detect whether or not an individual complies with some standard of behavior. Standard game theoretic analysis predicts that in the inspection game non-compliant behavior is deterred by fines targeted at non-compliant individuals, but encouraged by bonuses awarded to compliant individuals. In an experiment we find that fines are effective in deterring non-compliance. However, in agreement with recent behavioral theories, we find that the effect of bonuses on compliance is much weaker than predicted. (JEL C72, C92, K42).
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Some countries have introduced receipt-based tax lotteries (value-added tax (VAT) lotteries) in recent years in an effort to improve tax compliance. This acknowledges that the traditional method of tax compliance enforcement through audits, fines and penalties alone may no longer be optimal. The idea of a VAT lottery is to incentivise consumers to ask for a receipt when paying for goods or services, which serves as a lottery ticket that gives the consumer an opportunity to win a prize. The decline in tax compliance globally poses a threat to revenue collection and, ultimately, to governments’ ability to meet their spending commitments. Other countries, but particularly South Africa, may benefit from implementing a VAT lottery to assist in improved VAT collection. This study aims to analyse VAT lotteries that have been implemented across the world – particularly in the European Union (EU) member countries – through a systematised review in order to determine whether such a lottery could improve taxpayer compliance in South Africa. Of the six EU member countries analysed in detail, four showed a decrease in the VAT gap in the years following the VAT lottery implementation. VAT gap data post-implementation was not available for two of the countries. Positive results include an increase in the number of vendors reported for refusing to issue invoices, a reduction in the number of non-validated receipts, and increased VAT collection. The finance ministers of two countries, and the Ministry of Finance of another, publicly declared the VAT lotteries successful.
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This article studies the role of cashless payments in third-party reporting for the purposes of value-added tax (VAT) compliance management. In economies with well-developed financial institutions, the traceability of digital payments could serve as a deterrent to sales suppression even in the absence of explicit policies utilizing electronic payments for tax enforcement. Using country-level data for the European Union, this article shows that a 1% increase in the value of payments made with cards to gross domestic product (GDP) improves VAT performance by 0.05–0.09%. This effect is found to be strongest in economies characterized by low level of trust in public institutions, and does not vary with the extent of third-party reported information used by tax administrations, or the presence of a large-scale VAT invoice matching system. The result is robust to a rich number of characteristics controlling for various aspects of VAT’s design.
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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. We conclude that existing tax mechanisms have room for improvement by rewarding those audited and found compliant.
Experiment Findings
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การวิจัยนี้มีวัตถุประสงค์เพื่อศึกษามาตรการเพิ่มประสิทธิภาพในการจัดเก็บรายได้ขององค์กรปกครองส่วนท้องถิ่น (อปท.) โดยมีขอบเขตครอบคลุมกลุ่มตัวอย่าง อปท. จำนวน 17 แห่งในพื้นที่ 7 จังหวัด และครอบคลุมประเภทรายได้หลัก 8 ประเภท ผลการวิจัยพบว่าสามารถเพิ่มรายได้ให้แก่กลุ่มตัวอย่าง 35.998 ถึง 36.404 ล้านบาท และหากมีการขยายผลในวงกว้าง คาดว่าจะเพิ่มรายได้ให้แก่ อปท. ระหว่าง 17,863.77 ถึง 26,689.92 ล้านบาท รัฐและภาคส่วนต่าง ๆ จึงควรหนุนเสริมการพัฒนาด้านนโยบายและระบบปฏิบัติการในการบริหารจัดเก็บรายได้ท้องถิ่นต่อไป
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The recent literature on evaluating manpower training programs demonstrates that alternative nonexperimental estimators of the same program produce a array of estimates of program impact. These findings have led to the call for experiments to be used to perform credible program evaluations. Missing in all of the recent pessimistic analyses of nonexperimental methods is any systematic discussion of how to choose among competing estimators. This paper explores the value of simple specification tests in selecting an appropriate nonexperimental estimator. A reanalysis of the National Supported Work Demonstration Data previously analyzed by proponents of social experiments reveals that a simple testing procedure eliminates the range of nonexperimental estimators that are at variance with the experimental estimates of program impact.
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Andreoni, J., B. Erard and J. Feinstein (1998) Tax Compliance, Journal of Economic Literature, 36(3-4), June, 818-860.
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