scholarly journals Tax Morale

2014 ◽  
Vol 28 (4) ◽  
pp. 149-168 ◽  
Author(s):  
Erzo F. P. Luttmer ◽  
Monica Singhal
Keyword(s):  
Tax Evasion ◽  
Tax Policy ◽  
Field Experiments ◽  
Tax Compliance ◽  
Natural Experiments ◽  
Tax Morale ◽  
Tax Rate ◽  
Key Policy ◽  
Compliance Decisions ◽  
Underlying Mechanisms

There is an apparent disconnect between much of the academic literature on tax compliance and the administration of tax policy. In the benchmark economic model, the key policy parameters affecting tax evasion are the tax rate, the detection probability, and the penalty imposed conditional on the evasion being detected. Meanwhile, tax administrators also tend to place a great deal of emphasis on the importance of improving “tax morale,” by which they generally mean increasing voluntary compliance with tax laws and creating a social norm of compliance. We will define tax morale broadly to include nonpecuniary motivations for tax compliance as well as factors that fall outside the standard, expected utility framework. Tax morale does indeed appear to be an important component of compliance decisions. We demonstrate that tax morale operates through a variety of underlying mechanisms, drawing on evidence from laboratory studies, natural experiments, and an emerging literature employing randomized field experiments. We consider the implications for tax policy and attempt to understand why recent interventions designed to improve morale, and thereby compliance, have had mixed results to date.

scholarly journals Information processing in tax decisions: A MouselabWEB study on the Allingham and Sandmo model of income tax evasion

2020 ◽  
Author(s):  
Christoph Kogler ◽  
Jerome Olsen ◽  
Martin Müller ◽  
Erich Kirchler
Keyword(s):  
Tax Evasion ◽  
Information Acquisition ◽  
Income Tax ◽  
Tax Compliance ◽  
Relevant Information ◽  
Expected Value ◽  
Decision Under Uncertainty ◽  
Tax Rate ◽  
Compliance Decisions ◽  
Expected Values

The highly influential Allingham and Sandmo model of income tax evasion framed the decision whether to comply or to evade taxes as a decision under uncertainty, assuming that taxpayers are driven by utility-maximization. Accordingly, they should choose evasion over compliance if it yields a higher expected profit. We test the main assumptions of this model considering both compliance decisions and the process of information acquisition applying MouselabWEB. In an incentivized experiment, 109 participants made 24 compliance decisions with varying information presented for four within-subject factors (income, tax rate, audit probability, and fine level). Additional explicit expected value information was manipulated between-subjects. The results reveal that participants attended to all relevant information, a prerequisite for expected value like calculations. As predicted by the Allingham and Sandmo model, choices were clearly influenced by deterrence parameters. Against the assumptions, these parameters were not integrated adequately, as evasion did not increase with rising expected rate of return. More transitions between information necessary for calculating expected values did not result in higher model conformity, just as presenting explicit information on expected values. We conclude that deterrence information clearly influences tax compliance decisions in our setting, but observed deviations from the model can be attributed to failure to integrate all relevant parameters.

scholarly journals PROSPECT THEORY AND TAX COMPLIANCE: A MICROFOUNDED EQUILIBRIUM PERSPECTIVE

2019 ◽  
pp. 177-198
Author(s):  
Maria Carmela APRILE ◽  
Francesco BUSATO ◽  
Francesco GIULI ◽  
Enrico MARCHETTI
Keyword(s):  
Prospect Theory ◽  
Tax Evasion ◽  
Tax Compliance ◽  
The United States ◽  
Individual Choice ◽  
Tax Rate ◽  
Empirical Estimates ◽  
Open Questions ◽  
United States Economy ◽  
Compliance Decisions

This paper discusses the capabilities of a class of microfounded equilibrium models, augmented with Prospect Theory elements in the spirit of al- Nowaihi and Dhami (2007), to address several open questions in the analysis of tax evasion and compliance decisions. There are three main results: i) there exists a unique equilibrium with a tax evasion, consistent with the empirical estimates for the United States economy; ii) the model predicts a positive relationship between tax rate and evasion rate, while offering a solution to the so called Yitzhaki puzzle; iii) the «framing effect» plays a significant role in supporting these results; this is a distinctive characterstic of this class of model, typically not present in simple individual choice models. Furthermore, the model also allows us to investigate some potentially relevant effects of labor supply behavior on the tax compliance decisions.

scholarly journals A Review of how Behavioural Insights have been Applied to Tax-Related Policy and Field Experiments in the European Union

2021 ◽  
Vol 72 (6) ◽  
pp. 799-825
Author(s):  
Michal Müller
Keyword(s):  
European Union ◽  
Tax Evasion ◽  
Field Experiments ◽  
Critical Evaluation ◽  
Tax Compliance ◽  
Future Research ◽  
The European Union ◽  
Long Term Effects ◽  
The Real ◽  
Behavioural Insights

Tax evasion is a problem in every country. Since taxes are the most important source of income for the state budget, finance ministers and tax authorities strive to increase tax compliance and secure higher tax revenues. In the context of European Union objectives to monitor the effects of behavioural insights and gather information for critical evaluation, this article contributes to these efforts by summarizing policies and measures related to increasing tax compliance. This article is based on a systematic review and is complemented by other relevant sources related to applying behavioural insights to tax policy. The article concludes that although there is empirical evidence to suggest that behaviourally informed initiatives and interventions have had a significant impact on tax compliance in the short term, there is not enough evidence to draw conclusions on the long-term effects. In addition, the real motives and causal mechanisms that have led to increased tax compliance are not entirely clear. The results of the research suggest that deterrence is an important factor. Although deterrence might increase tax compliance, it is uncertain whether it has any positive effect on tax morale in general. The article raises the argument that many behaviourally-informed techniques are actually based on deterrence. In this respect, the article calls for further research to reveal the real effects of behavioural insights. Further work on reviewing and evaluating research results will also be important, as individual initiatives across EU countries are not easily traceable. This fact represents the limits of this study and highlights opportunities for future research.

scholarly journals The Informal Sector, the “implicit” Social Contract, the Willingness to Pay Taxes and Tax Compliance in Zimbabwe

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Favourate Y Sebele-Mpofu
Keyword(s):  
Social Contract ◽  
Informal Sector ◽  
Tax Evasion ◽  
Tax Compliance ◽  
Structure Design ◽  
Mixed Method Research ◽  
Structured Interviews ◽  
African Countries ◽  
Tax Morale ◽  
Tax Revenues

Abstract The growth of the informal sector in African countries has largely been viewed as an escape from regulation and deliberate intention to avoid paying taxes and these views have been widely popularised, ignoring significant details to the disadvantage of realistic tax policy design. Zimbabwe adopted a presumptive tax system for various informal sector categories to enlarge the tax base and increase tax revenues mobilised. However, presumptive taxes have not generated significant revenue. Tax compliance in the informal sector has often been studied from the tax structure design, the deterrence model perspective and capacity limitations without paying adequate attention to tax morale. Tax morale can be denoted through the peer effect of the compliance behaviour of other taxpayers, the fulfilment of the psychological social contract, transparency and accountability in the use of tax revenues as well as stakeholder communication, built on mutual trust and respect. In light of these tax morale dimensions, it is evident that tax compliance can never be divorced from the intrinsic motivation to pay taxes. The inextricable link, between tax evasion, tax compliance and tax morale, motivates this study. While previous studies on tax morale have applied single method research approaches, this study adopted a sequential exploratory mixed method research design, combining both qualitative and quantitative (through the use of document reviews, semi-structured interviews and questionnaires) in order to bring a balanced view. The study found out that tax morale was a strong driver of tax evasion and non-tax compliance in the informal sector.

scholarly journals Social Norms and Tax Culture in Transition Countries: Case of Kyrgyzstan

2017 ◽  
Author(s):  
Raziya Abdiyeva
Keyword(s):  
Social Norms ◽  
Tax Evasion ◽  
Negative Attitude ◽  
Tax Compliance ◽  
Financial Resources ◽  
Tax Revenue ◽  
Government Performance ◽  
Kyrgyz Republic ◽  
Social Reforms ◽  
Tax Morale

Taxes are the main financial resource of government. Performance of tax system depends on the willingness of taxpayers to pay taxes or tax morale. Government can use deterrence instruments as tax penalty and size of detection. But socio-psychological factors as attitudes of community towards tax behavior of social norms related taxation can manage and regulate tax compliance more effectively than deterrence instruments. In transition economies as Kyrgyzstan government needs more financial resources to implement economic and social reforms, to decrease poverty and achieve sustainable development. Nowadays government seeks ways to increase tax revenue. Also in the project of the Conception of Fiscal Policy in Kyrgyz Republic for 2015-2020 developed by Ministry of Economy increasing tax morale, tax awareness and consciousness is stated one of the main tasks. Tax morale and tax compliance of taxpayers’ influenced by attitude of community, family and occupational group to taxes. Negative attitude of society to tax evasion can effectively regulate tax evasion and stimulate tax compliance. The aim of this research is to reveal social norms in Kyrgyzstan and to analyze how they influence on tax behavior.

scholarly journals Life Satisfaction and Tax Morale in Azerbaijan: Mediating Role of Institutional Trust and Financial Satisfaction

2021 ◽  
Vol 13 (21) ◽  
pp. 12228
Author(s):  
Orkhan Nadirov ◽  
Khatai Aliyev ◽  
Bruce Dehning ◽  
Ilaha Sharifzada ◽  
Rafiga Aliyeva
Keyword(s):  
Life Satisfaction ◽  
Tax Evasion ◽  
Large Scale ◽  
Tax Compliance ◽  
Mediating Effect ◽  
Policy Implications ◽  
Institutional Trust ◽  
Financial Satisfaction ◽  
Tax Morale ◽  
Mediating Role

This paper examines the relationship between life satisfaction (measured as the self-reported satisfaction of each individual with their past life and goal achievements) and tax morale (measured as the likelihood of an individual’s intrinsic motivation to pay taxes). Using a large-scale survey dataset from Azerbaijan, it is documented that life satisfaction is positively associated with tax morale. Life satisfaction plays a significant role in increasing tax compliance practices. It is also important to note that there is a positive mediating effect of life satisfaction on tax morale through financial satisfaction and institutional trust. In line with our hypotheses, the results of a series of analyses remain robust to different models. These results imply that a higher level of life satisfaction may increase the proportion of individuals who report the highest tax morale in Azerbaijan. Our findings have policy implications for Azerbaijan and other governments aiming to alleviate high levels of tax evasion.

Revenue Enhancement through Increased Motor Fuel Tax Enforcement

1996 ◽  
Vol 1558 (1) ◽  
pp. 67-73
Author(s):  
Stephen J. Baluch
Keyword(s):  
Diesel Fuel ◽  
Tax Evasion ◽  
Motor Fuel ◽  
Tax Compliance ◽  
Fiscal Year ◽  
Federal State ◽  
Tax Enforcement ◽  
Joint Project ◽  
Tax Rate ◽  
Fuel Tax

The development of the FHWA fuel tax compliance program is described, and estimates of additional motor fuel tax revenues generated by enforcement programs are presented. Substantial revenue losses caused by motor fuel tax evasion schemes were discovered in the mid-1980s. Since 1986, the Internal Revenue Service and FHWA have worked cooperatively to reduce fuel tax evasion by supporting changes in tax collection procedures and additional enforcement resources. Since fiscal year 1990, FHWA has provided funding to supplement state and IRS fuel tax enforcement resources under the auspices of the Joint Federal/State Motor Fuel Tax Compliance Project (joint project). The Intermodal Surface Transportation Efficiency Act of 1991 provided $5 million annually through 1997 for the joint project. Enforcement activities directly contribute hundreds of millions of dollars to the Highway Trust Fund (HTF) and state transportation funds, a yield estimated at $10 to $18 per dollar spent on these programs. Furthermore, the Omnibus Budget Reconciliation Act of 1993 moved the incidence of the federal excise tax on diesel fuel to the point of removal from bulk storage at the terminal and required tax-exempt diesel fuel to be dyed. The HTF revenue from the diesel fuel tax has increased more than $1 billion in the year since these changes went into effect on January 1, 1994, net of the tax rate increases also enacted in 1993. Some $600 million to $700 million of this increase has been estimated to be the result of improved compliance.

scholarly journals A Psychometric Investigation of the Personality Traits Underlying Individual Tax Morale

2019 ◽  
Vol 19 (3) ◽  
Author(s):  
Nicolas Jacquemet ◽  
Stéphane Luchini ◽  
Antoine Malézieux ◽  
Jason F. Shogren
Keyword(s):  
Tax Evasion ◽  
Rational Choice Theory ◽  
Individual Preference ◽  
Tax Compliance ◽  
Cognitive Empathy ◽  
Moral Emotions ◽  
Moral Judgments ◽  
Tax Morale ◽  
Trade Offs ◽  
Compliance Behavior

AbstractWhy do people pay taxes? Rational choice theory has fallen short in answering this question. Another explanation, called “tax morale”, has been promoted. Tax morale captures the behavioral idea that non-monetary preferences (like norm-submission, moral emotions and moral judgments) might be better determinants of tax compliance than monetary trade-offs. Herein we report on two lab experiments designed to assess whether norm-submission, moral emotions (e.g. affective empathy, cognitive empathy, propensity to feel guilt and shame) or moral judgments (e.g. ethics principles, integrity, and moralization of everyday life) can help explain compliance behavior. Although we find statistically significant correlations of tax compliance behavior with empathy and shame, the economic significance of these correlations are low–—more than 80% of the variability in compliance remains unexplained. These results suggest that tax authorities should focus on the institutional context, rather than individual preference characteristics, to handle tax evasion.

scholarly journals Income Tax Issues on the Omnibus Law and Its Implications in Indonesia

2021 ◽  
Vol 12 (2) ◽  
pp. 164
Author(s):  
Prianto Budi Saptono ◽  
Cyntia Ayudia
Keyword(s):  
Tax Policy ◽  
Income Tax ◽  
Tax Compliance ◽  
Electronic System ◽  
Tax Rates ◽  
Domestic Investment ◽  
Tax Rate ◽  
Income Tax Policy ◽  
The Government ◽  
Using Data

This research has two objectives. The first objective is to analyze the issue of income tax policy based on the idea of taxation omnibus law. In 2020, Law No. 36 of 2008 concerning Income Tax was amended twice as stipulated in Law No. 2 of 2020 and Law No. 11 of 2020 (Job Creation Law). The second objective is to analyze the implications of income tax policy changes on taxation practices in Indonesia. This research is a descriptive qualitative study using data collection techniques in documentation and literature studies. The research concludes that the omnibus law policy aims to encourage domestic investment funding. Income tax issues in Law No. 2 of 2020 include lowering the corporate income tax rate and imposing taxes on trade through an electronic system. Besides, the issue of income tax in Law No. 11 of 2020 includes tax subjects' determination, the territorial system's adoption, tax objects' exclusion, and changes to the provisions on dividends. The implication of the change in income tax policy on taxation practices is that taxes distort the economy. The delegation of regulations for reducing income tax rates to the government through government regulations creates legal uncertainty. Thus, it is necessary to have tax regulations with minimal complexity, not overlap, provide legal certainty, and further encourage voluntary tax compliance.

Hard-Earned Income and Tax Compliance

2008 ◽  
Vol 13 (4) ◽  
pp. 298-304 ◽  
Author(s):  
Stephan Muehlbacher ◽  
Erich Kirchler ◽  
Erik Hoelzl ◽  
Julie Ashby ◽  
Chiara Berti ◽  
...  
Keyword(s):  
New Zealand ◽  
Tax Evasion ◽  
Tax Compliance ◽  
The Other ◽  
Aspiration Level ◽  
Relevant Factor ◽  
Earned Income ◽  
Taxable Income ◽  
Compliance Decisions ◽  
Tax Reporting

Is the effort invested to achieve taxable income a relevant factor for tax compliance? If the value of income increases with the effort exerted, reluctance to pay taxes should be high. On the other hand, if income is perceived as compensation for one’s endeavor, there is too much at stake to take the risk of being audited and paying a fine. Consequently, tax evasion should be more likely if income was obtained easily. These contradicting predictions were tested in a questionnaire study with samples from eight countries (Australia, Austria, England, France, Italy, New Zealand, Spain and Switzerland; N = 1,223). Results show that the effort exerted to obtain taxable income and the aspiration level matter in compliance decisions. Hard-earned money is more likely to be reported honestly to tax authorities, particularly if the aspiration level can be satisfied by honest tax reporting.

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