When a Tax Prize Reduces Payments: How a Raffle Undermined Compliance in Montevideo

Why a Random Tax Holiday Mattered

Guadalupe Tuñón, Thad Dunning, Felipe Monestier, Rafael Piñeiro, and Fernando Rosenblatt study whether temporarily rewarding punctual taxpayers with a randomized tax holiday improves compliance. The authors investigate a common policy idea—using lotteries or one-off rewards to encourage on-time payments—in a city with substantial nonpayment that needs reliable revenue.

How the Intervention Worked

The Montevideo municipal government raffled tax holidays at random to taxpayers who had paid punctually. The research combines a randomized field intervention with complementary natural- and survey-experiment components. Individual administrative payment records serve as the primary, unobtrusive outcome measure, allowing the team to track real payment behavior over time.

Key Findings

• Winning a tax holiday produced the opposite of the intended effect: on average, winners were less likely to comply with tax payments for about two years following the interruption created by the holiday.
• The authors’ additional analyses point to a behavioral mechanism: the one-time holiday interrupted taxpayers’ habitual payment routines, and this disruption—rather than immediate liquidity relief or changed attitudes—best explains the decline in subsequent payments.

What This Implies for Policy

The results caution against incentive designs that break established payment routines. The authors argue that policymakers aiming to raise revenue should favor approaches that reinforce regular payment habits (for example, designs that reward continuous compliance rather than create long interruptions) or otherwise mitigate the habit-disrupting effects of rewards.

Why Scholars and Practitioners Should Care

This study shows that well-intentioned incentives can backfire when they alter the behavioral processes that sustain compliance. By combining administrative records with randomized and survey evidence, the paper provides robust, policy-relevant insights into the behavioral foundations of tax compliance and practical trade-offs in incentive design.