How to Incentivize Tax Compliance when Households Demand Services? What Works (Better) and General Limitations

INSTITUTIONS ACROSS THE WORLD

Lilith Burgstaller, Sarah Necker

During the recent crises, governments around the world have spent large amounts of public funds to limit the impact of economic downturns on citizens and corporations. The resulting pressure on public funds is highlighting the crucial need to improve tax compliance.

Key Messages

  • Several countries use household tax credits to incentivize tax compliance in the provision of household services
  • Tax credits increase households’ willingness to pay for an invoice; however, the effectiveness depends on their design
  • A tax credit that makes the financial benefit salient to consumers is most (cost-)effective
  • Governments should consider that tax credits are related to high windfall effects.
EconPol Forum (27)
Citation

Lilith Burgstaller, Sarah Necker: “How to Incentivize Tax Compliance when Households Demand Services? What Works (Better) and General Limitations,” EconPol Forum 24 (1), CESifo, Munich, 2023.