Tax compliance and obedience to authority at home and in the lab: A new experimental approach |
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Authors: | C Bram Cadsby Elizabeth Maynes Viswanath Umashanker Trivedi |
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Institution: | (1) Department of Economics, University of Guelph, Guelph, ON, N1G 2W1, Canada;(2) Schulich School of Business, York University, 4700 Keele Street, Toronto, ON, M3J 1P3, Canada |
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Abstract: | In most experimental studies of tax evasion, participants are instructed that they may report any amount of income from zero
up to the amount they actually earned or received. This amounts to an invitation to gamble. In contrast, real-world tax authorities
unambiguously demand compliance. We develop two new settings for conducting tax experiments. Both involve an explicit demand
for compliance. Thus, we can determine whether knowing that the experimental authority would regard evasion as wrongful disobedience
will influence compliance decisions. We demonstrate that simply telling people that they are required to pay a “participation
fee” analogous to a tax produces remarkably high compliance rates and less sensitivity to changes in economic variables than
in the earlier experimental literature using invitation-to-gamble language. This suggests that many people pay taxes despite
the financial attraction of non-compliance because they are strongly inclined towards obeying authority. Furthermore, we show
that giving participants a week to make their reporting decisions at home without an authority figure physically present overcomes
the inclination to obey for some people, significantly lowering compliance rates. However, the majority still complies, even
after the audit rate falls from 25% to 1%, which would make non-compliance extremely attractive if it were viewed only as
a simple matter of risk and expected return.
Electronic Supplementary Material Supplementary material is available in the online version of this article at
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JEL Classification C91, H26 |
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Keywords: | Tax Compliance Evasion Experiment Obedience |
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