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.     

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.     

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.     

Possible reasons for tax resistance in South Africa: A customised scale to measure and compare perceptions with previous research

Tax resistance takes two major forms, namely tax avoidance and tax evasion both of which diminish a government's tax receipts. Limited research on taxpayers’ perceptions has been conducted in South Africa. A study was undertaken in order to determine the perceptions of South African taxpayers about various aspects with regard to taxation. There are no standardised scales to measure taxpayers’ perceptions. The reasons for evading taxes, however, have been explored by both economists and psychologists. This article elaborates on the design of a measurement tool for determining taxpayers’ perceptions taking previous research into account. In addition, this article assesses whether findings from the current research substantiates earlier research. The results of the current study confirmed the majority of findings from past research. The significance of this study is emphasised, in that it builds on previous research, utilising insights from several disciplines and various theoretical perspectives.     

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.     

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.     

Framing of information on the use of public finances, regulatory fit of recipients and tax compliance

Information campaigns to increase tax compliance could be framed in different ways. They can either highlight the potential gains when tax compliance is high, or the potential losses when compliance is low. According to regulatory focus theory, such framing should be most effective when it is congruent with the promotion or prevention focus of its recipients. Two studies confirmed the hypothesized interaction effects between recipients’ regulatory focus and framing of information campaigns, with tax compliance being highest under conditions of regulatory fit. To address taxpayers effectively, information campaigns by tax authorities should consider the positive and negative framing of information, and the moderating effect of recipients’ regulatory focus.     

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.     

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.     

Continuing complexity: The university careers of a scientific elite in relation to their class origins and schooling

We report on continuing research on the UK scientific elite, intended to illustrate a proposed new approach to elite studies and based on a prosopography of Fellows of the Royal Society born from 1900. We extend analyses previously reported of Fellows' social origins and secondary schooling to take in their university careers as under- and postgraduates. The composite term ‘Oxbridge’, as often applied in elite studies, is called into question, as members of the scientific elite prove to have been recruited more from Cambridge than from Oxford. Particular interest then attaches to the relation between Fellows' social origins and schooling and their attendance at Cambridge. Among Fellows whose university careers were made at Cambridge, those of more advantaged class origins and those with private schooling are over-represented, although in this, as in various other respects, including Fellows' field of study, family influences persist independently of schooling. One suggestive interaction effect exists in that being privately educated increases the probability of having been at Cambridge more for Fellows from managerial than from professional families. Private schooling leading on to both undergraduate and postgraduate study at Cambridge can be identified as the educational ‘royal road’ into the scientific elite; and Fellows coming from higher professional and managerial families alike have the highest probability of having entered the elite in this way. But the most common route turns out in fact to be via state schooling and attendance at universities outside of ‘the golden triangle’ of Cambridge, Oxford and London; and this route is far more likely to have been followed by Fellows of all other class origins than higher professional. The relation between the degree of social skew in the recruitment of an elite and the degree of social homogeneity among its members can be more complex than has often been supposed.     

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.     

Measuring misalignment: The location of US multinationals’ economic activity versus the location of their profits

A major international effort—the Organisation for Economic Co‐operation and Development Base Erosion and Profit Shifting initiative—aims to reduce the extent of misalignment between the profits of multinational groups, and the location of their real economic activity. This article uses survey data on the international operations of US‐headquartered multinational groups to show major misalignments of profit. A small number of “profit‐haven” jurisdictions are seen to have captured a disproportionate share of total profits, resulting in serious disadvantages for most countries, regardless of income level.     

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.     

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.     

Stigmatisation of elite actors in corporate scandals: The role of meaning making in the media

Corporate scandals sometimes result in social devaluation and stigma for elite actors. This paper explores the linkage between the meaning-making processes that pertain to corporate scandals in the media and the outcome of stigma in two Swedish cases: the Skandia and ABB scandals. Several discursive strategies are identified that support two meaning-making processes that mediate between corporate acts and the stigmatisation of elite actors: the labelling of the acts as illegitimate and the transformation of the illegitimate act into evidence of some deeply discrediting attributes of elite organisational actors. The paper contributes to the literature on stigmatisation by elaborating on the concept of scandal-induced stigmatisation of elite actors, integrating a more sophisticated understanding of discursive legitimation, and introducing the characteristics of meaning making in the media as a mechanism that links corporate acts to the stigmatisation of elite corporate actors.     

Consecration and meritocracy in elite business schools: The case of a Swedish student union

Sociologists are paying increasing attention to the business and financial elites that control today's global economy; indeed, there's a great need to understand who these elites are, what they do, and what makes them tick, as individuals, and as a class. But we also need to understand how the economic elites aremade in the current social and economic system, and one significant way of doing this, is by examining elite business schools, that is, the institutions that aim to train and prepare people to assume important leadership and decision-making positions in business, finance and related sectors of critical importance to the management of modern capitalism. Based on the notion of consecration, I empirically examine how the student union of Sweden's premier business school, The Stockholm School of Economics, offers its members a learning environment partly separated from the school, and how this semi-independent organization contributes to making undergraduate students socially, morally and esthetically meritorious for elite jobs in primarily management consulting and finance; a process that is largely shaped by corporate actors that participate formally and informally in the student union activities. The paper contributes to the sociological literature on business schools and higher education and elites, both theoretically through the twin notions of meritocracy and consecration, and empirically through its unique focus on student union activities in an elite business school setting.     

The Politics of Regional Inequality in Ghana: State Elites,Donors and PRSPs

Through an analysis of Ghana's HIPC Fund which was established as part of the PRSP process, this article shows how aid‐financed efforts to reduce regional inequality in Ghana have failed. Dominant political elites agreed to policies reducing regional inequality in order to have access to aid funding but, once approved, these funds were allocated on quite different criteria in ways that marginalised the poorest. This analysis reinforces the growing recognition that developmental outcomes in most poor countries are shaped not so much by the design of ‘good’ policies per se, but more importantly by the power relationships within which policy‐implementing institutions are embedded. Aid donors seem unable to grasp this important lesson fully, and so their capacity to contribute to reducing regional inequality remains limited.     

Gender inequality and inter-household economic inequality in emerging economies: exploring the relationship

While most emerging economies have been characterised by persistence/growth of inter-household economic inequality in recent decades, and simultaneous poor performance on gender equality, the intersecting relationship between these two trends so far has not received much attention. This article is an initial attempt look at this relationship, showing how gender inequality has both contributed to, and been affected by, growing economic inequality. It focuses on eight emerging economies – Brazil, Russia, India, China, South Africa, Mexico, Indonesia, and Turkey (dubbed the BRICSAMIT countries). The article analyses Gini coefficient trends and Global Gender Gap Index trends, and draws in addition on insights gained from seven exploratory interviews with Oxfam colleagues and partners working on women's rights in the considered countries. It concludes with a reflection on the possible future policy agenda that would allow one to simultaneously address the issues of gender inequality and economic inequality in the analysed countries.     

Trust and Estate Planning: The Emergence of a Profession and Its Contribution to Socioeconomic Inequality1

This article offers a new perspective on the connection between socioeconomic inequality and occupations by examining the impact of trust and estate planners on global wealth stratification. While many studies treat the professions as mirrors of inequalities in their environments, this article looks at the ways professionals participate in the creation of stratification regimes. Trust and estate planners do this by sheltering their clients' assets from taxation, thereby preserving private wealth for future generations. Using tools such as trusts, offshore banks, and shell corporations, these professionals keep a significant portion of the world’s private wealth beyond the reach of the state. Trust and estate planning thus contributes to creating and maintaining socioeconomic inequality on a global scale. The significance of the profession has grown as wealth itself has become more fungible, spurring innovation in legal, organizational, and financial strategies, and thwarting a myriad of laws and policies designed to limit enduring inequality in modern, democratic societies.