The backfiring effect of auditing on tax compliance

Using country-level data from 2003–2014, we examine the association between auditing level (measured as number of verification actions taken by tax authorities per 100 taxpayers in each country) and tax compliance (measured as business executives’ perception of tax evasion). Our hypothesis is that compliance increases until a certain auditing level is reached, and decreases beyond that level (i.e., an elevated auditing level backfires). In line with our expectation, the results of a series of tests indicate that there is a U-shaped association between auditing and tax evasion. We discuss how a potential backfiring effect may depend on the extent to which compliance is voluntary.     

The slippery slope framework on tax compliance: An attempt to formalization

Kirchler, Hoelzl, and Wahl (2008) presented with the so-called ‘slippery slope’ framework a new approach to understand tax compliance. The slippery slope approach supposes two routes to tax compliance: deterrence of tax evasion by audits and fines on the one hand, and building a trusting relationship with taxpayers by services and support on the other hand. In this paper, the slippery slope framework is formalized by assuming two groups of taxpayers: compliance-minded and evasion-minded persons. Defining reaction functions for persons of both groups with respect to coercive and persuasive power instruments of tax authorities, the typical slippery slope picture emerges that characterises the authorities’ work. As a consequence, both groups of policy tools are considered necessary to generate tax compliance. In addition to that, it is shown that coercive and persuasive power may be substitutes or complements to each other, depending of the parameters of the taxpayers’ reaction functions. As a further crucial determinant of tax compliance, the behaviour of the fellow citizens with respect to taxpaying is identified.     

The effects of official and unofficial information on tax compliance

The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where subjects declare their income after receiving either a communication of the average tax evasion rate (“official information”) or a private message from a group of randomly matched peers about their tax behavior (“unofficial information”). We use the experimental data to estimate a dynamic econometric model of tax evasion and find three main results. First, tax compliance is very persistent, but less so in the presence of information. Second, the higher the officially communicated past tax evasion rate, the higher the degree of persistence: former evaders are more likely to evade again (and evade more), and former compliant individuals are more likely to comply again (and, when evading, evade less). Third, when an unofficial communication of past evasion (compliance) from all their peers is received, both former evaders and compliant individuals are more likely to evade (comply) again.     

Work performance and tax compliance in flat and progressive tax systems

Different tax systems, and their impact on work motivation and tax compliance are significant issues in contemporary political and economic debates. The proportional feature of a flat tax system is assumed to lead to higher performance, while the fairness of the redistributive progressive tax system is assumed to result in higher tax compliance. However, empirical findings on the topic are inconclusive. Both work performance and tax compliance under different tax systems were examined in an experiment, with special attention devoted to the effect of a change in tax systems. A flat tax system was supposed to induce greater work performance, whereas a progressive tax system was expected to increase tax compliance based on fairness perceptions, allowing for the opposite effect due to higher complexity. Furthermore, it was assumed that performance and tax payments would be influenced by motives of self-interest. The design included 20 rounds with a real-effort task in each round, determining participants’ experimental income. Participants (N = 191) made decisions about their tax payments from round-to-round in four different experimental conditions: (1) a flat tax system, (2) a progressive tax system, (3) starting with a flat and changing to a progressive, and (4) starting with a progressive and changing to a flat tax system. Results indicate higher work performance in a progressive system. However, a change from a progressive tax system to a flat system led to increased tax compliance.     

The effects of income source,context, and income level on tax compliance decisions in a dynamic experiment

This study employs a laboratory experiment to explore the joint effect of income source (earned versus endowed) and decision context (tax versus nontax) on tax compliance behavior. During the experiment, subjects faced various income levels and made multiple reporting decisions. The results indicate that overall compliance is not significantly affected by the interaction of income source and context. However, this joint effect influences the relationship between income level and compliance and how compliance behavior evolves over time. In both cases, the treatment group with earned income in a tax context displays behavior that is distinct from the other three groups.     

A self-interest analysis of justice and tax compliance: How distributive justice moderates the effect of outcome favorability

Compliance with tax authorities has been studied mainly in the fields of economics and psychology. The focus has respectively been on self-interest motives and justice concerns in tax compliance. We argue that both concerns are less divergent than is often thought. Specifically, we studied the moderating role of distributive justice on the relationship between outcome favorability and tax compliance in two cross-sectional surveys. It is generally believed that favorable outcomes increase compliance because they decrease what can be gained from non-compliance. The present research addresses the role of distributive justice in this process. Since people believe that distributive fairness guarantees their long-term outcomes, favorable present outcomes now imply favorable future outcomes and unfavorable present outcomes now imply unfavorable future outcomes. Thus, we expected fair outcomes to result in a strong relationship between outcome favorability and compliance. On the basis that unfair outcomes are believed to result from chance, outcome favorability should have a weaker relationship with compliance when outcomes are unfair. Even when controlling for other variables, this prediction was supported by both studies.     

Empathy,sympathy, and tax compliance

This paper examines the effect of “empathy” and “sympathy” on tax compliance. We run a series of laboratory experiments in which we observe the subjects’ decisions in a series of one-shot Tax Compliance Games presented at once and with no immediate feedback. Importantly, we employ methods to identify subjects’ sympathy, such as the Davis Empathic Concern Scale and questions about frequency of prosocial behaviors; we also use priming in order to promote subjects’ empathy. Our results suggest that the presence of sympathy in most cases encourages more tax compliance. Our results also suggest that priming to elicit empathy also has a positive impact on tax compliance. These results support the inclusion of noneconomic factors in the analysis of tax compliance behavior.     

Using regulatory fit theory to examine how the communication context of compliance-gaining interactions influences compliance

Compliance-gaining research focuses mainly on how message variations differentially affect compliance; however, few studies have examined how framing the compliance-gaining goal (i.e., promotion/prevention) and providing a means to achieve the goal function concurrently to influence compliance. The current study uses regulatory fit theory to examine how a fit between goals and means of compliance-gaining messages affects compliance. A field experiment was conducted in which subjects were presented with a compliance-gaining request in which goals and means were varied. Results indicated that compliance rates and donation amounts were higher under conditions of fit between the regulatory orientation of goals and means rather than non-fit. Findings are discussed in light of their implications for compliance-gaining research and regulatory fit theory.     

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.     

Tax compliance depends on voice of taxpayers

Reducing the social distance between taxpayers and tax authorities boosts taxpayers’ acceptance of tax load and tax compliance. In the present experiment participants had the opportunity to pay their tax due either as one single compliance decision or as separate compliance decisions for each type of requested contribution (coined voice on contributions). In addition, contributions were either distributed according to a fixed scheme exogenously chosen, or participants had the possibility to change the distribution pattern (coined voice on distribution). Furthermore information about participants’ contributions was either clearly related to the tax context or related to government public expenditures (coined context). Besides analyzing the effect of voice and context on compliance, order of tax payments was controlled for in the analyses. Results show that having voice on tax contributions and on tax distribution leads to higher compliance. Moreover, compliance was higher in the context avoiding tax framing.     

Citizenship and power in an agent-based model of tax compliance with public expenditure

In this paper we present a model of tax compliance with heterogeneous agents who maximize their individual utility based on income and the conjectured level of per capita public expenditure. We formally include psychological drivers in this model. These drivers affect individual behavior, such as risk aversion, together with appreciation of public expenditure, expectations about peers’ compliance and a natural inclination to comply, all of which we summarize in a quality termed “citizenship”. The enforcement system, based on random inspections, is standard and only partially known to agents.The agent-based model is simulated under a variety of settings, representing different “societies”. We use the artificial data produced by the model to estimate the effects of taxpayers’ traits on personal tax behavior and to build a compliance societal slippery slope. At the individual level, we find a positive dependence of compliance on all variables, with the significant exception of the tax rate, which has a negative impact. As far as societies are concerned, we show how aggregate tax compliance depends on composite indices of citizenship and power, and we find that the former is more important than the latter.     

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.     

Misperception of chance and loss repair: On the dynamics of tax compliance

Previous experimental studies on tax behavior have been particularly concerned with determining the absolute effect of detection rate and punishment on tax filing, leading to mixed results. In this paper, we shed some additional light on the effectiveness of audit probability and sanctions by drawing upon a dynamic setting with particular focus on the time lag between audits. Our results showed that tax compliance decreased immediately after a random audit, suggesting that subjects were prone to misperception of chance. Sanctions decreased compliance to a lesser extent; they were, however, associated with the tendency of subjects to repair their losses by increasing their capital stock.     

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.     

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.     

Social networks and occupational choice: The endogenous formation of attitudes and beliefs about tax compliance

The paper analyses the emergence of group-specific attitudes and beliefs about tax compliance when individuals interact in a social network. It develops a model in which taxpayers possess a range of individual characteristics – including attitude to risk, potential for success in self-employment, and the weight attached to the social custom for honesty – and make an occupational choice based on these characteristics. Occupations differ in the possibility for evading tax. The social network determines which taxpayers are linked, and information about auditing and compliance is transmitted at meetings between linked taxpayers. Using agent-based simulations, the analysis demonstrates how attitudes and beliefs endogenously emerge that differ across sub-groups of the population. Compliance behaviour is different across occupational groups, and this is reinforced by the development of group-specific attitudes and beliefs. Taxpayers self-select into occupations according to the degree of risk aversion, the subjective probability of audit is sustained above the objective probability, and the weight attached to the social custom differs across occupations. These factors combine to lead to compliance levels that differ across occupations.     

An agent-based model of network effects on tax compliance and evasion

Agent-based models are flexible analytical tools suitable for exploring and understanding complex systems such as tax compliance and evasion. The agent-based model created in this research builds upon two other agent-based models of tax evasion, the Korobow et al., 2007, Hokamp and Pickhardt, 2010 models. The model utilizes their rules for taxpayer behavior and apprehension of tax evaders in order to test the effects of network topologies in the propagation of evasive behavior. Findings include that network structures have a significant impact on the dynamics of tax compliance, demonstrating that taxpayers are more likely to declare all their income in networks with higher levels of centrality across the agents, especially when faced with large penalties proportional to their incomes. These results suggest that network structures should be chosen selectively when modeling tax compliance, as different topologies yield different results. Additionally, this research analyzed the special case of a power law distribution and found that targeting highly interconnected individuals resulted in a lower mean gross tax rate than targeting disconnected individuals, due to the penalties inflating the mean gross tax rate in the latter case.     

Great powers in global tax governance: a comparison of the US role in the CRS and BEPS

The G20 and the OECD recently claimed two successes in global tax governance: adopting automatic exchange of banking information in 2014, and the 2015 BEPS project on taxation of multinational companies. While the former signifies an essential step forward in reducing tax evasion, the BEPS outcomes were criticized for merely patching up flawed taxation principles based on the arms’-length standard. The emergence of global automatic exchange of information is often ascribed to the US who unilaterally enforced its own FATCA automatic information-exchange standard, while no comparable action happened during BEPS. This article investigates the US position on the BEPS outcomes and if a similar unilateral action would have led to more far-reaching cooperation concerning BEPS. By examining the distributional consequences of cooperation in both processes, we conclude that US power in tax governance in both issues is more limited than generally assumed and insufficient to explain global cooperation.     

Evaluation of the relationship between compliance with the follow-up and treatment protocol and health literacy in bladder tumor patients

Abstract

Objective: To investigate the relationship between the compliance of bladder cancer patients with cystoscopic follow-up and the treatment protocol, and their health literacy.

Methods: Patients who underwent transurethral resection surgery for bladder tumor were found to have non-muscular invasive bladder carcinoma on pathology examination and then underwent cystoscopic follow-up for 1?year or more were included in the study. Cystoscopic follow-up was recommended to the low- and high-risk groups in terms of progression and recurrence. The patients were evaluated with the Health Literacy Survey-European Union scale.

Results: The mean age of the patients was 67.13?±?10.77 years. The treatment continuity rate was 80.50% (n?=?33) in the adequate health literacy group (n?=?41) and significantly higher than the 56.50% (n?=?48) rate in the inadequate health literacy group (n?=?85) (p?=?.008). The health literacy results revealed that the health promotion and general index score was higher in the group of patients under the age of 65.

Conclusions: Adequate health literacy in bladder cancer patients is associated with better compliance with the treatment protocol. Young patients show better compliance with the follow-up protocol recommended by the physician. Increasing the follow-up protocol compliance of elderly patients with inadequate health literacy is necessary.