For Better Citizenship, Scratch and Win

Tina Rosenberg in the New York Times: “China, with its largely cash economy, has a huge problem with tax evasion. Not just grand tax evasion, but the everyday “no receipt, please” kind, even though there have been harsh penalties: Before 2011, some forms of tax evasion were even punishable by death.

The country needed a different approach. So what did it do to get people to pay sales tax?
A. Hired a force of inspectors to raid restaurants and stores to catch people skipping the receipt, accompanied by big fines and prison terms.
B. Started an “It’s a citizen’s duty to denounce” exhortation campaign.
C. Installed cameras to photograph every transaction.
D. Turned receipts into scratch-off lottery games.

One of these things is not like the other, and that’s the answer: D. Instead of punishing under-the-table transactions, China wisely decided to encouragelegal transactions by starting a receipt lottery. Many places have done this — Brazil, Chile, Malta, Portugal, Slovakia and Taiwan, among others. In Taiwan, for example, every month the tax authorities post lottery numbers; match a few numbers for a small prize, or all of them to win more than $300,000.

China took it further. Customers need not store their receipts and wait until the end of the month to see if they’ve won money. Gratification is instant: Each receipt, known as a fapiao, is a scratch-off lottery ticket. People still game the system, but much less. The fapiao system has greatly raised collections of sales tax, business income tax and total tax. And it’s cheap to administer: one study found that new tax revenue totaled 30 times (PDF) the cost of the lottery prizes.

When a receipt is a lottery ticket, people ask for a receipt. They hope to get money, but just as important, they like to play games. Those axioms apply around the globe.

“We have groups that say: we can give out an incentive to our customers worth $15,” said Aron Ezra, chief executive of OfferCraft, an American company that designs games for businesses. “They could do that and have everyone get an incentive for $15. But they’d get better results for the same average price by having variability — some get $10, some get $100.” The lottery makes it exciting.

The huge popularity of lotteries shows this. Another example is the Save to Win program, which credit unions are using in seven states. Microscopic interest rates weren’t enough to get low-income customers to save. So instead, for every $25 they put into a savings account, depositors get one lottery entry. They can win a grand prize — in some states, $10,000 — or $100 prizes every month.

What else could lotteries do?

Los Angeles and Philadelphia have been the sites of experiments to increase dismal voter turnout in local elections by choosing a voter at random to win a large cash prize. In May 2015, the Southwest Voter Registration Education Project in Los Angeles offered $25,000 to a random voter in one district during a school board election, in a project named Voteria.

Health-related lotteries aren’t new. In 1957, Glasgow held a mass X-ray campaign to diagnose tuberculosis. Health officials aimed to X-ray 250,000 people and in the end got three times that many. One reason for the enthusiasm: a weekly prize draw. A lovely vintage newsreel reported on the campaign.

More than 50 years later, researchers set up a lottery among young adults in Lesotho, designed to promote safe sex practices. Every four months the subjects were tested for two sexually transmitted diseases, syphilis and trichonomiasis. A negative test got them entered into a lottery to win either $50 (equivalent to a week’s average salary) or $100. The idea was to see if incentives to reduce the spread of syphilis would also protect against HIV.

The results were significant — a 21.4 percent reduction in the rate of new H.I.V. infections, and a 3.4 percent lower prevalence rate of HIV in the treatment group after two years. And the effect was lasting — the gains persisted a year after the experiment ended. The lottery worked in large part because it was most attractive to those most at risk: many people who take sexual risks also enjoy taking monetary risks, and might be eager to play a lottery.

The authors wrote in a blog post: “To the best of our knowledge, this is the first H.I.V. prevention intervention focusing on sexual behavior changes (as opposed to medical interventions) to have been demonstrated to lead to a significant reduction in H.I.V. incidence, the ultimate objective of any H.I.V. prevention intervention.”…(More)”