Evidence from the Randomization of Public Works
In an effort to reward good taxpayers and improve compliance with real estate taxes, in January 2009, the Santa Fe municipal government organized a lottery (under the name "Good Taxpayer Award"), which entitled the winners to construction or renovation of a complete sidewalk.
The lottery rules were officially announced on December 16, 2008. The owners of residential units, commercial properties and/or vacant lots were eligible to participate in a lottery as long as they had paid their 2008 real estate tax liabilities before January 12, 2009. Each eligible property received a unique number, and 400 properties were randomly chosen from a set of 72,742. The lottery was held on February 27, 2009. Municipal officials contacted each winner and also announced the results in local newspapers
Construction of the new sidewalks began after the lottery, and reached its highest point in June 2009 and lasted just over a year. The average length of the renewal was 11 days. At the time of collecting the information for the study, 223 sidewalks had been built, and 16 had begun, but there was no completion date reported. The rest had not been built for several reasons, such as: the owner did not respond to the invitation, the existing sidewalk was in perfect condition, or the lottery winner had donated the sidewalk to another taxpayer.
Owners of 72,742 residential units, commercial properties and/or vacant lots, provided they had paid their real estate tax liabilities of 2008 before January 12, 2009
Offer incentives for payment of taxes by rewarding timely payment, achieving a lasting increase in the intrinsic motivation of people, and have positive effects on third parties (neighbors).
Results
The incentives had a positive effect on compliance for the lottery winners. First, taxpayers feel recognized by the government and feel good seeing their name in the news as "good taxpayers." This effect seems to be short term. Second, once construction took place, taxpayers were better able to evaluate the work of the local government and how the money collected is used. Consequently, winning the lottery generates positive short-term effects on compliance (about 5pp in payment on time) and having sidewalks built generates a positive and permanent effect (around 7pp on average over 3 years since the time when the sidewalk is built). These effects are possibly explained by the increase in reciprocity, one of the moral channels behind voluntary tax compliance.