Measuring and explaining tax evasion: Improving self-reports using the crosswise model

Due to its sensitive nature, tax compliance is difficult to study empirically, and valid information on tax evasion is rare. More specifically, when directly asked on surveys, respondents are likely to underreport their evasion behavior. Such invalid responses not only bias prevalence estimates but may also obscure associations with individual predictors. To generate more valid estimates of tax evasion, we used a new method of data collection for sensitive questions, the crosswise model (CM). The CM is conceptually based on the randomized response technique (RRT), but due to its advanced design, it is better suited for large surveys than classical RRTs. In an experimental online survey, we compared the CM (N = 862) to standard direct questioning (DQ; N = 305). First, our results showed that the CM was able to elicit a higher proportion of self-stigmatizing reports of tax evasion by increasing privacy in the data collection process. Second, on average, we found stronger effects of our predictor variables on tax evasion in the CM condition compared with the DQ condition such that an egoistic personality and the opportunity for tax evasion predicted actual tax evasion only in the CM condition.     

Power,justice, and trust: A moderated mediation analysis of tax compliance among Ethiopian business owners

We explored the moderating roles of legitimate and coercive power held by the tax authority in the relationship between procedural justice, trust in the tax authority, and voluntary tax compliance. Drawing from fairness heuristic theory and the slippery slope framework of tax compliance, we predicted that procedural justice fosters voluntary tax compliance, particularly when legitimate power of the tax authority is low and when coercive power of the authority is high. Moreover, we predicted that these interactive effects are mediated by (cognition-based) trust. Finally, we predicted that coercive power of the tax authority is positively related with enforced tax compliance. The results of a field study among Ethiopian business owners supported most predictions. This research is among the first to integrate social–psychological and deterrence-related factors to understand tax compliance behavior in a developing country.     

Student debt and hardship: Evidence from a large sample of low- and moderate-income households

Student debt has risen in recent years as higher education costs have shifted to students and their families, particularly those with low-to-moderate incomes (LMI). Though a college degree continues to convey higher earnings, those who finance their degrees have lower net worth and greater financial difficulties than persons without student debt. We assess the relationship between student debt and material and health care hardship among a large sample (n = 5558) of LMI tax filers, using propensity score analysis to adjust for self-selection into student debt status and loan amount and monthly payment quartiles. We find that participants with student debt have a higher likelihood of hardship. Loan amounts only partially predict hardship, and borrowers making current loan payments are at lower odds for hardship than non-payers. We also find that among those with student debt, non-payers and those without college degrees have much greater social and economic disadvantages.     

Fear and caring: Procedural justice,trust, and collective identification as antecedents of voluntary tax compliance

We investigated the interactive roles of procedural justice of the tax authority, trust in the tax authority, and identification with the nation in predicting voluntary tax compliance. Drawing from fairness heuristic theory and relational models of justice, we predicted that the relationship between procedural justice and voluntary tax compliance that has been found particularly among citizens with low (vs. high) trust in the tax authorities is restricted to citizens who weakly (vs. strongly) identify with the nation. The results of a field study with samples of Ethiopian and US taxpayers as respondents largely support our predictions. This research integrates the role of important and well-studied social psychological factors that shape voluntary tax compliance and reveals support for the hypothesis in a developing (i.e., Ethiopia) and a developed (i.e., US) nation – nations with strongly divergent tax climates.     

Regulatory fit effects on perceived fiscal exchange and tax compliance

Paying taxes can be considered a contribution to the welfare of a society. But even though tax payments are redistributed to citizens in the form of public goods and services, taxpayers often do not perceive many benefits from paying taxes. Information campaigns about the use of taxes for financing public goods and services could increase taxpayers’ understanding of the importance of taxes, strengthen their perception of fiscal exchange and consequently also increase tax compliance. Two studies examined how fit between framing of information and taxpayers’ regulatory focus affects perceived fiscal exchange and tax compliance. Taxpayers should perceive the exchange between tax payments and provision of public goods and services as higher if information framing suits their regulatory focus. Study 1 supported this hypothesis for induced regulatory focus. Study 2 replicated the findings for chronic regulatory focus and further demonstrated that regulatory fit also affects tax compliance. The results provide further evidence for findings from previous studies concerning regulatory fit effects on tax attitudes and extend these findings to a context with low tax morale.     

Mental accounting of income tax and value added tax among self-employed business owners

Mental accounting describes a series of cognitive operations that help organize financial activities and facilitate money management. Self-employed taxpayers who make use of a separate mental account for future income tax payments or collected value added tax (VAT) might find it easier to declare their taxes correctly than taxpayers who do not. This study used a questionnaire to investigate whether self-employed taxpayers (N = 350) use mental accounting to manage their income tax and VAT obligations, whether mental accounting relates to tax knowledge, business and personality characteristics, and to what extent mental accounting is related to intended tax behavior. Our results reveal that some taxpayers mentally segregate taxes from turnover (segregators) while others do not (integrators). We found small differences in mental accounting between income taxes and VAT. Moreover, confirmatory factor analyses suggested that tax knowledge and mental accounting are distinct constructs. Segregation of taxes was related to lower impulsivity and more positive attitudes toward taxation. Individuals who stated they segregate taxes due from turnover more often claimed to run financially prosperous businesses. Mental accounting was not related to intentions of evading taxes, but individuals with higher mental accounting scores reported more pronounced levels of tax planning. While our research design does not allow drawing causal inferences, these findings could suggest that increasing self-employed taxpayers’ ability to organize their financial activities might be a promising strategy to strengthen the competitiveness of their businesses.     

Effective tax rates and firm size in Ethiopia

The literature on Effective Tax Rates (ETRs) focuses on high‐ and middle‐income countries, but there is very little evidence on low‐income countries. This article addresses this gap with new evidence from Ethiopia. We investigate corporate ETRs in Ethiopia and whether the distributional effects they have in practice are in line with the corporate tax policy design. We calculate ETRs in line with the literature in this field, using profit tax at the numerator and gross profit at the denominator. We then analyse ETRs not only using panel data, focusing particularly on their relation to firm size, but also including other explanatory variables. Our main result is that, despite a proportional tax rate, small firms face a higher effective tax burden than larger firms, while middle‐sized firms face the lowest burden of all. We highlight that tax systems can have practical implications that differ largely from their policy design, due to compliance costs and imperfect enforcement. Measures to reduce compliance costs for small firms are particularly recommended.     

Targeting occupations with varying reputations to increase tax revenue

If the government's goal is to raise tax revenue in a cost-effective manner, which (if any) occupation categories could be targeted with a higher probability of an audit to yield increased revenue? Looking beyond mere opportunity to evade (e.g., self-employment) and starting from the premise that taxpayers in certain occupations evade more than others, the issue is whether these taxpayers respond to a change in the audit rate. Theory suggests that compliance increases in response to higher audit rates; the occupations with the higher evaders could therefore be targeted. This theory is tested by drawing a connection between occupation, reputation, and tax compliance. We assume that taxpayers in occupations with high need for reputation respond to a lower extent to increased tax audits than taxpayers whose achievement does not depend on reputation. The results support the effectiveness of raising tax revenue by targeting specific occupations, non-managers, with a higher probability of an audit.     

Moral values and increasing stakes in a dictator game

Using data from a large representative US sample (N = 1519), we compare hypothetical moral fairness values from the Moral Foundations Sacredness Scale with actual fairness behavior in an incentivized dictator game with either low or high stakes. We find that people with high moral fairness values fail to live up to their high fairness standards, when stake size increases. This violates principles from consistency theories according to which moral values are supposedly aligned with moral behavior, but is in line with temptation theories that question the absoluteness of morality values.     

Expanding the conceptualization of re-entry: The inter-play between child welfare and juvenile services

Re-entry in child welfare is traditionally viewed as a child exiting to permanency and then reentering the child welfare system. Using this approach is effective for understanding child welfare practice from a single-system lens, but gives an incomplete picture of how children may move between related child serving systems. The present study expands the definition of re-entry by examining re-entry for 2259 children who either return to the child welfare system or move into the juvenile justice system after reunification from foster care. When measuring a broader concept of re-entry (into either system) the rate of re-entry went from 18% to 25% - a 33% increase. Regression analyses further suggested that many of the risk and protective factors associated with standard child welfare reentry were also predictive of multisystem re-entry such as having previous child welfare experience (OR = 1.79, p < 0.000), and child behavior as a factor at removal (OR = 1.75, p < 0.000). Findings of this study support the need to continue increasing the conceptualization of re-entry to be more inclusive of related systems as well as continuing to focus research efforts on understanding effective practices within child serving systems so that re-entry into either system is mitigated.     

Effects of vocational training on unemployed youths' work motivation and work engagement: Mediating roles of training adequacy and self-actualization

This study investigated work motivation and work engagement, along with their associated factors, among unemployed young people participating in vocational training schemes in Tianjin, China. Derived from a sample of 209 young trainees (mean age = 22.67, SD = 1.93), the results supported the hypotheses that training adequacy and self-actualization showed positive effects on work motivation and work engagement. Furthermore, training variables (the number of training courses attended and duration of workplace training) did not present any significant direct effect on either work motivation or work engagement; however, they predicted the two outcome variables indirectly through the mediating effects of training adequacy and self-actualization. The study implied that power, skills, and other resources gained during the training provided fuel for motivation and performance. The study also advanced the human capital development approach by unraveling the mechanism through which hard skills and soft skills contribute to youth empowerment and employment. The implications of these present findings for theory, practice, and policy were also discussed.     

Revealing side effects of quota rules on group cooperation

The quota rule in employment is a legal tool to promote gender equality in professions and positions where women are underrepresented. An accompanying assumption is that gender diversity positively affects one of the aspects of team performance in form of group cooperation. However, it is unclear whether this positive effect can be achieved if diversity increases due to a quota rule. In two fully incentivized experiments involving a real-effort task (N₁ = 188 and N₂ = 268), we examined the impact of quotas as compared to performance-based promotion on group cooperation. We thereby categorized participants either with regard to gender or to an artificial category that was randomly assigned. Cooperation within groups declined when promotion was based on quota compared to performance-based promotion, irrespective of the categorization criterion. Further analyses revealed that this negative effect of quota rules on cooperation is not driven by procedural fairness perceptions or expectations about performance of the promoted group member. Implications of the results for the implementation of equality and diversity initiatives are discussed.     

Social norms and tax compliance: Framing the decision to pay tax

Observed levels of tax compliance are higher than predicted levels (when predictions are based on Allingham and Sandmo's neoclassical model of tax evasion). They are higher if social norms recognise the importance of compliance. But how do social norms frame decisions to pay tax? Can prospect theory be applied to shed insight into the way that social norms exert their influence? An analysis of questionnaire responses (from Italy and from the UK) suggests that they exert their influence by changing the reference points that individuals use when they code changes as ‘gains’, or ‘losses’. The evidence suggests that social norms frame the decision to pay tax by changing individuals’ perceptions of their entitlement to income. This consideration is important when designing policy to deter evasion.     

Compliance costs caused by agency action? Empirical evidence and implications for tax compliance

Compliance costs of taxpayers should not only be affected by the tax law itself but also by its implementation through the tax authorities. In this paper we analyze the effect of authority behavior on the burden of complying with tax regulations. Using survey data of Belgian businesses, we develop an estimation strategy to overcome simultaneity bias by the construction of proxy variables. According to our estimate, a customer-unfriendly tax administration increases the average compliance burden by about 27%. Our outcome has interesting implications for further research. First of all, authority behavior does not only affect “soft” tax compliance factors like fairness and trust, but also “hard” aspects like costs. Second, the distribution of administrative cost burdens between the taxpayer side and the authorities may be important regarding the cost-efficiency of the tax system as a whole.     

The influence of tax authorities on the employment of tax practitioners: Empirical evidence from a survey and interview study

Tax practitioners play a crucial role in the degree of taxpayers’ compliance – a role that has increased as tax systems worldwide have become more complex. However, little is known about tax authorities’ impact on taxpayers’ decisions to employ tax practitioners. Based on earlier research on motivations to employ a tax practitioner and the extended slippery slope framework of tax compliance, we conducted two studies which provide some answers. A survey study – comprising a representative sample of 500 Austrian self-employed taxpayers – revealed that financial gain is not the most important reason to employ a tax practitioner but instead the motivation to avoid problems with the tax authorities. Related to that, we also find that taxpayers’ perception of tax authorities wielding coercive power motivates them to employ tax practitioners. In the interview study with 33 self-employed taxpayers and 30 tax auditors, taxpayers indicated that they sought to avoid contact with tax officers by employing tax practitioners. This finding was supported by tax officers who reported preferring interaction with tax practitioners over direct contact with taxpayers. The two studies point to the complex relationship between taxpayers, tax authorities and tax practitioners, and allow the drawing of theoretical and practical implications.     

Legalism and creativity: tax non-compliance in the eyes of the economic elite

This paper analyzes elite tax compliance from a sociological perspective in order to examine how different tax behaviors are justified or how they embody different taxpayers’ subjectivities. Drawing from the case of Chile and using a qualitative approach based on 32 interviews conducted with members of the economic elite, it is argued that forms of non-compliance -such as evasion and avoidance- are grounded in different ‘repertoires of evaluation’ while denoting a plurality of distinctions and criteria of evaluation which relate to the legal culture in which the tax system operates. Findings show that legalism -a literal conception of the rules- does not always favor tax compliance and that it may even go against the purpose of tax collection when a creative use of the law prevails. Furthermore, legalism and creativity allow for the main justifications for challenging tax payment as well as the perceptions and beliefs that underlie the everyday relationship between taxpayers and the state to be understood.     

Understanding organizations for runaway and homeless youth: A multi-setting quantitative study of their characteristics and effects

Runaway and homeless youth (RHY) are served by specialized settings (e.g., Drop-In Centers, Transitional Living Programs, and multi-program settings), but little is known about the characteristics of these organizations or their effects on RHY’s behavioral and psychosocial outcomes. To address this gap we studied 29 randomly selected diverse settings across New York State, including those in rural, suburban, and urban areas. Within settings, we used the Youth Program Quality Assessment model to observe and rate programs for RHY (N = 53), assess program administrators (N = 30), and conduct anonymous structured assessment batteries with RHY aged 16-21 years (N = 463). We found settings overall evidenced satisfactory-to-high quality on a multi-perspective setting quality score. With respect to RHY’s behavioral outcomes, engagement in school/job training/work was high (81 %), substance use was moderate (mean use: 17 of the past 90 days), and 37 % evidenced involvement in the street economy (e.g., drug dealing, burglary). RHY in Transitional Living Programs and multi-program settings had more engagement in school/job training/work and less involvement in the street economy than their peers in Drop-In Centers. The quality of settings was not associated with these three behavioral outcomes (school/training/work, substance use, street economy), likely due to issues of restricted range. However, higher setting quality was associated with four constructive psychosocial outcomes; namely, RHY’s perceptions that settings foster positive outcomes in these three domains, and perceived resilience. Thus the present study highlights settings’ overall good quality, with some variability, and provides guidance on strategies to assess setting quality. Consistent with the existing literature, RHY in Drop-In Centers are highly vulnerable and may require additional types of services/programs to achieve their potential. Further, while the present study suggests all settings benefit RHY, better quality settings may be able to move beyond meeting RHY’s basic requirements and address higher order relational, psychosocial, and motivational needs. Importantly, fostering a sense of resilience among RHY, as well as young people’s experiences of settings as helpful to them in achieving good behavioral outcomes, may have long-term beneficial effects on RHY’s engagement in other settings, relationships, adaptation, and functioning.     

The Impact of Uruguay's 2007 Tax Reform on Equity and Efficiency

In 2007, the Uruguayan government implemented a tax reform which introduced a new progressive labour income tax and a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This article evaluates the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for 2006 and 2009. Using a Difference‐in‐Differences technique, it shows that the new system reduced inequality by 2 Gini points without producing any discernible disincentive effect, suggesting that suitably designed reforms of direct taxation can simultaneously promote equity and efficiency.     

Community-based organizations for vulnerable children in South Africa: Reach,psychosocial correlates,and potential mechanisms

Community-based organizations (CBOs) have the potential to provide high quality services for orphaned and vulnerable children in resource-limited settings. However, evidence is lacking as to whether CBOs are reaching those who are most vulnerable, whether attending these organizations is associated with greater psychosocial wellbeing, and how they might work. This study addressed these three questions using cross-sectional data from 1848 South African children aged 9–13. Data were obtained from the Young Carers and Child Community Care studies, which both investigated child wellbeing in South Africa using standardized self-report measures. Children from the Child Community Care study were all CBO attenders, whereas children from Young Carers were not receiving any CBO services, thereby serving as a comparison group. Multivariable regression analyses were used to test whether children attending CBOs were more deprived on socio-demographic variables (e.g., housing), and whether CBO attendance was in turn associated with better psychosocial outcomes (e.g., child depression). Mediation analysis was conducted to test whether more positive home environments mediated the association between CBO attendance and significantly higher psychological wellbeing. Overall, children attending CBOs did show greater vulnerability on most socio-demographic variables. For example, compared to children not attending any CBO, CBO-attending children tended to live in more crowded households (OR 1.22) and have been exposed to more community violence (OR 2.06). Despite their heightened vulnerability, however, children attending CBOs tended to perform better on psychosocial measures: for instance, showing fewer depressive symptoms (B = − 0.33) and lower odds of experiencing physical (OR 0.07) or emotional abuse (OR 0.22). Indirect effects of CBO attendance on significantly better child psychological wellbeing (lower depressive symptoms) was observed via lower rates of child abuse (B = − 0.07) and domestic conflict/violence (B = − 0.03) and higher rates of parental praise (B = − 0.03). Null associations were observed between CBO attendance and severe psychopathology (e.g., suicidality). These cross-sectional results provide promising evidence regarding the potential success of CBO reach and impact but also highlight areas for improvement.     

Children's executive function in a CPS-involved sample: Effects of cumulative adversity and specific types of adversity

Prior research has identified the presence of executive function (EF) deficits in child protective service (CPS) involved (versus non-involved) children but minimal work has examined predictors that might explain individual differences within these CPS-involved children. Here, we sought to characterize EF in a large sample (N = 694) of CPS-involved children and examine how specific adversities (physical abuse, neglect, caregiver domestic violence, and caregiver substance dependence) and cumulative adversity (at ages 0–3 and 3–6 years) predict EF (at approximately 5–6 years). It was expected that the sample would exhibit low EF overall based on previous research in maltreated children. Specific adversity and cumulative adversity analyses were largely exploratory given the limited previous work in this area. Results indicated poor EF overall, with 43.5% of children performing worse than chance. Among children who performed greater than chance, higher cumulative adversity, physical abuse, and caregiver substance use (at ages 3–6 years) predicted better EF. These findings join literature documenting that, within CPS-involved children, the presence of certain adversities predicts variable cognitive function. Findings highlight the potential relevance of evolutionary psychology to understanding how alterations in behavior linked to harsh and unpredictable early environments may cue accelerated brain development underlying relative cognitive advantages, within at-risk, low performing samples. Longitudinal studies are critical to determine if the relative EF advantages linked to higher adversity persist over time or result in lower EF later on, reflecting a more rapid, but overall limited, trajectory of cognitive development.