Latin American Political Economy Seminar: Tax Compliance in Latin America: When Do People Respond?

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Carlos Scartascini (Inter-American Development Bank) - The economic profession has traditionally concentrated on designing the most efficient and effective public policies. Little attention has been given, however, to the way those policies are communicated, which may affect their effectiveness. For example, it has been traditionally assumed that once introduced into law, fines and penalties would reduce tax evasion. But could the way the government announces to delinquent taxpayers the cost of evading have a differential effect on compliance?

The literature has also been relatively silent about the effectiveness of rewards to affect behaviors. Do citizens react to positive inducements? Are the effects long lasting? Are prizes an appropriate incentive for rewarding good behavior?

Making use of two randomized experiments on tax compliance in Latin America, we try to answer those questions. The evidence indicates that the communication methods matter (it is not the same sending a letter, calling, or visiting a taxpayer) and that rewarding taxpayers for good behavior with a durable and visible public good has large positive effects on compliance.

These results highlight that the mechanism through which policies are informed and publicized should not be neglected from the policy debate, and that rewards may be an important policy tool for affecting behavior.

Dr. Carlos Scartascini is Principal Economist at the Research Department of the Inter-American Development Bank. His areas of expertise include Political Economy and Public Finance. His current research focuses on uncovering the determinants of tax compliance in Latin America (through the use of natural and field experiments), explaining the political economy of tax reforms, and understanding and measuring the process of government capacity accumulation. He is Associate Editor of the academic journal Economía. A native of Argentina, Dr. Scartascini holds a Ph.D. and a M.A. in Economics from George Mason University.

This event is part of the special series organised by UCL Institute of the Americas on Latin American Political Economy, in collaboration with the UCLU Latin American Policy Society.