Can whistleblower programs reduce tax evasion? Experimental evidence

There are many ways of tackling tax evasion. The traditional strategies implemented by tax authorities fight fiscal fraud through audits and penalties. However, there also exist a plethora of unconventional methods, such as whistleblower programs. Although there is rich economic literature on tax evasion, auditing and penalties, tax agencies' heavy reliance on whistleblower programs has mostly been ignored. We ran an experiment in which taxpayers can punish tax evaders by reporting them to the authorities, even though it is costly for them to do so and despite the lack of any material benefit from doing so. Information on other taxpayers' compliance rates together with the opportunity to report tax evaders have a positive and very significant effect on the level of income reported. Observing the compliance rates of other participants alone does not suffice to increase tax revenues.