Tax lotteries: The crowding-out of tax morale and long-run welfare effects

This paper examines tax lottery policies as a method to reward consumers who request business receipts for goods and services they have paid for. We argue that the evaluation of the welfare effects of tax lotteries based solely on short-run tax revenue variations overlooks important long- term sources of inefficiency. Tax lotteries may crowd out the willingness of individuals with leading roles in shaping social norms to engage in voluntary third-party tax enforcement, and thus cause long-term welfare losses. We sought support for our argument analyzing the case of the Portuguese tax lottery and conducting an empirical study with a sample of Portuguese nationals. Findings show that tax morale is a key determinant of voluntary third-party tax enforcement, and that the level of education is positively associated with the crowding out of the intrinsic motivation to engage in voluntary third-party tax enforcement.