Extending the lessons of laboratory experiments on tax compliance to managerial and decision economics

Abstract

In this paper we examine what experiments on tax compliance have revealed about compliance behavior, and we discuss what these experiments can reveal about managerial and decision economics. We draw two general conclusions from this discussion. First, compliance is a complicated decision, one that depends upon the financial incentives facing the decision‐maker, including detection and punishment, but one that also depends upon many other factors that have not been considered by the standard economics‐of‐crime paradigm. Second, and as a consequence, broader approaches to the compliance decision are needed, ones that involve enforcement but that also encompass more complete models of behavior. Put differently, any company strategy based only on detection and punishment may well be a reasonable starting point for compliance but not a good ending point. Instead, what is needed is a multi‐faceted approach that emphasizes enforcement, but that also emphasizes the broad range of motivations that explain why people obey rules and regulations. © 1998 John Wiley & Sons, Ltd.

Regulatory enforcement with competitive endogenous audit mechanisms

“…For example, Harrington (1988) writes, "In a static analysis there is no way for the agency and the firm to react to each other's actions." Further, this literature asserts that dynamic audit models provide a better explanation for the compliance "puzzle," the stylized fact that actual compliance rates are high even though audit rates and expected penalties are low (see Alm and McKee, 1998;Harrington, 1988). Our article takes an alternative position, namely that (static) competitive endogenous audit mechanisms based on relative evaluation generate strong incentives for compliance and may provide a better explanation for the compliance puzzle.Many regulations require agents to disclose information, where such disclosure will ultimately lead to increased costs, such as the levels of activities that are subject to taxation, or report information that may cause a negative market reaction.…”

The Economic Theory Assumption and Utility Maximization Model: The Perspective of Zakat Compliance Behavior

“…This is because numerous studies have been explained through utility maximization and compliance behavior, especially in the context of taxation. Pioneering research was conducted by Allingham and Sandmo (1972) who formulated the Tax Evasion Model in discussing tax evasion (Ali, Cecil, & Knoblett, 2001;Alm & McKee, 1998;Alm & Torgler, 2011;Wintrobe & Gërxhani, 2004). The model is derived from the traditional expected utility theory (Torgler, 2003;Zhiyang An, 2006), using standard microeconomic assumption (Chorvat, 2007) and is known as the standard theoretical model in explaining associated tax compliance (Diabi, 1993;Wintrobe & Gërxhani, 2004).…”

The Impact of Non-Economic Factors on Voluntary Tax Compliance Behavior: A Case Study of Small and Medium Enterprises in Vietnam

“…Ethical norms have a strong relationship with tax compliance (Battiston and Gamba 2013;Traxler 2010) and affect tax compliance behavioral intentions (Bobek et al 2007); thus, social pressure has a strong positive effect on taxpayers' voluntary tax compliance behavior (Battiston and Gamba 2016). This is because taxpayers in a social community will form their intention to comply with taxes because of social acceptance (Benk et al 2011), perceptions as well as invisible pressure from the public that society will influence their tax compliance or non-compliance decisions (Alm and McKee 1998;Torgler 2007;Jackson and Milliron 1986). For example, if taxpayers perceive non-compliance as common behavior among people around them, they may also choose not to comply with taxes (Kirchler et al 2008).…”