Compliance and the power of authority

Karakostas, Alexandros; Zizzo, Daniel John

doi:10.1016/j.jebo.2015.09.016

Cited by 61 publications

(40 citation statements)

References 61 publications

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“…For example, individuals who have a negative attitude towards government tend to comply less, both in the laboratory (Webley et al ., ) and in the naturally‐occurring world (Pommerehne and Weck‐Hannemann, ). Further, ‘trust' in institutions affects the viability of government policies by affecting these social norms: when individual trust in government is greater, enforcement tends to be more effective in deterring non‐compliance (Feld and Frey, ; Guala and Mittone, ; Wahl et al ., ; Kastlunger et al ., ; Kogler et al ., ; Karakostas and Zizzo, ). Social norms are also affected by group heterogeneity, with greater heterogeneity (race, religion) often reducing tax compliance via its effects on ‘social capital' (Alm et al ., ).…”

Section: Insights From Empirical Researchmentioning

confidence: 98%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

272

223

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In this paper, I review and assess what we have learned about what motivates individuals to pay -or to not pay -their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestionsand some predictions -for future research. 356 ALM measure of the individual's constant relative risk aversion. Using the definitions of I C and I N in equations (1) and (2), the expected utility maximization generated by the solution to equation (3) can be solved for the optimum amount of reported income R*. 9 Now suppose that R* is calculated for specific, realistic values of the various parameters. For example, if t = 0.4, f = 2, p = 0.02 and e = 1, then the individual will optimally report no income. Very large values for relative risk aversion are required to generate compliance consistent with actual country experience. When e = 3, reported income is only 14% of true income; when e = 5, it is still only 44%; when e = 10, it is 71%; and e must exceed 30 for compliance to exceed 90%. Even if the probability of detection is as (unrealistically) high as 30% (with t = 0.4 and f = 2), relative risk aversion must exceed 7 to generate compliance over 90%. However, existing field evidence on the coefficient of relative risk aversion using a variety of approaches suggests that e ranges between 1 and 2, and may even be as low as 0 (Friend and Blume, 1975;Hansen and Singleton, 1983;Hall, 1988;Chetty, 2006;Gandelman and Hernandez-Murillo, 2013). Risk aversion must be abnormally large for behaviour to be even roughly comparable to actual observed choices, even in many developing countries with low levels of compliance.Admittedly, there are reasons why this simplistic analysis somewhat overstates the problem with the standard expected utility approach. 10 Consider the United States as an example. First, a standard feature of many individual income tax systems is that a third party (e.g. the individual's employer) reports the relevant part of an individual's taxable income to the tax authority (and often also withholds income taxes on this reported taxable income). This third-party information increases significantly the chances that an individual who underreports income on a filed return will be detected, especially in its combination with employer source-withholding. 11 Second, the 'official' IRS audit rate somewhat understates 'actual' IRS audit policy. In fact, the IRS conducts a range of audits, and for many types of audits, the actual rates are quite high. Third and relatedly, while overall audit rates are quite low, among certain income and occupation classes, they are more frequent. Fourth, the IRS conducts a wide range of audit-type activities, including line matching and requests for information, and these activities are much more frequent. 12 Finally, it is individual perceptions of audit rates that influence behaviour, rather than...

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Section: Insights From Empirical Researchmentioning

confidence: 98%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

272

223

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“…However, justified authority and penalty only had an effect together by raising initial contributions and dampening the typical decline. Here, authority nudged towards prosocial actions, yet obedience could also have a darker side: Karakostas and Zizzo () match participants and ask them to destroy the income of their partners at a cost to themselves. While a direct order did not work, nudging participants by referring to a “usefulness to the experimentor” did lead to destruction.…”

Section: Legal Compliance and Social Normsmentioning

confidence: 99%

The Force of Norms? The Internal Point of View in Light of Experimental Economics

Hoeft

2019

Ratio Juris

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Setting aside its conceptual issues, it remains an open question whether the internal point of view is a good descriptive tool for the behaviour of ordinary citizens or if a sanctionbased explanation of legal compliance is sufficient. This paper will discuss strains of experimental literature corroborating Hart's criticism of sanction-based accounts and suggesting that compliance with norms is indeed a shared practice sensitive to social influence. Legal institutions can interact with this shared practice in a way that cannot be reduced to pure incentives. Sanction-based theories cannot account for norm compliance: They face a challenge in explaining the complex behavioural patterns observed in the minimalistic setting of laboratories.* I would like to thank Richard Holton for his continued support in conceptualizing and improving this paper.

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“…Leder et al reported that information campaigns about taxes financing public goods and services increase consciousness of tax payers about the importance of taxes, strengthen their perceptions toward financial change, and increase their compliance levels [21]. Likewise, Karakostas and Zizzo also stated that especially implementations like advertisements support the concept of norm creation toward tax compliance [22].…”

Section: Tax Compliance and Tax Consciousnessmentioning

confidence: 99%

Keystones of Performing a Proper Tax Policy Design for Tax Compliance: Does Perception of Tax Compliance Develop in Persons Who Are Not Tax Payers Yet?

Saraçoğlu¹,

Çaşkurlu²,

Pürsünlerli³

2018

Taxes and Taxation Trends

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Tax compliance takes place in the scope of the efficiency of the tax implementation. Tax income operations are heavily dependent on tax compliance, while the fairness of the allocation of tax burden affects the tax payers' compliance. The situation has been studied here by dealing with university students in regard to whether or not a perception of tax compliance develops in highly educated people who are not tax payers yet and to what degree. The findings of the study briefly states that students agree that paying taxes completes the concept of being a good citizen, perceive the sensitivity submitting declarations on time and showing care in paying tax debts, and have negative perceptions on the tax administration being transparent, correct, and trustable. So for, an achievement of a proper tax policy design should be primarily considered as the perception of tax compliance of the people, who being the tax payers of any country.

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Compliance and the power of authority

Cited by 61 publications

References 61 publications

What Motivates Tax Compliance?

What Motivates Tax Compliance?

The Force of Norms? The Internal Point of View in Light of Experimental Economics

Keystones of Performing a Proper Tax Policy Design for Tax Compliance: Does Perception of Tax Compliance Develop in Persons Who Are Not Tax Payers Yet?

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