Shaping tax norms through lotteries

This work develops a theoretical framework for a behavioral policy against indirect tax evasion that is complementary to the classical deterrence approach. The policy provides incentives to customers in the form of lottery prizes in order to act as third-party tax enforcers. I argue that the policy introduction might successfully overcome the free-riding problem characterizing third-party tax enforcement. A theoretical model based on Tversky and Kahneman's (1992) Cumulative Prospect Theory is presented. The model states the necessary conditions for an effective policy implementation.

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