Luigi Mittone

Tax Evasion and Moral Constraints: some Experimental Evidence

Tax evasion has been mainly studied as a problem of choice under uncertainty; like any portfolio manager, the taxpayer has to allocate his/her fixed gross income between two assets: a risky asset, tax evasion, and a safe asset, tax payment. This approach, however, does not take full account of the moral constraints involved in the tax evasion decision. The main objective of the experiment presented in the paper was to investigate the role played by moral constraints in the tax evasion decision. The evidence suggests that the taxpayers decisional process involves not only monetary elements but also psychological and moral factors. Copyright 1997 by WWZ and Helbing & Lichtenhahn Verlag AG

Experiments in economics: External validity and the robustness of phenomena

External validity is the problem of generalizing results from laboratory to non‐laboratory conditions. In this paper we review various ways in which the problem can be tackled, depending on the kind of experiment one is doing. Using a concrete example, we highlight in particular the distinction between external validity and robustness, and point out that many experiments are not aimed at a well‐specified real‐world target but rather contribute to a ‘library of robust phenomena’, a body of experimental knowledge to be applied case by case.

Imitative Behaviour in Tax Evasion

Tax evasion is a topic widely explored by the microeconomic literature, both from the theoretical and the experimental perspective. The theoretical approach to tax evasion started with the seminal paper by Allingham and Sandmo (1972), which treated it within the expected utility maximisation frame a la Von Neumann Morgenstern. The experimental approach includes a large number of works, mainly devoted to the verification of theoretical results and to the discussion of behavioural assumptions.

What Goes Around Comes Around? Experimental Evidence of the Effect of Rewards on Tax Compliance

The current experimental study examined the effect of monetary rewards on tax compliance. Eighty-six participants were randomly assigned to one control and two reward conditions (low vs. high reward). Overall, tax compliance was not affected by the rewards. However, a change in compliance strategies was observed. It seems that rewards provoked an all-or-nothing behavior. Whereas in the reward conditions, participants were either completely honest or evaded all of their income, in the control condition, the amount of evasion varied more strongly. Furthermore, audited compliant taxpayers who are rewarded evaded less in the following period compared with audited compliant taxpayers who experienced no rewards.

Motives of sanctioning: Equity and emotions in a public good experiment with punishment

We study conditional cooperation based on a sequential two-person linear public good game in which a trusting first contributor can be exploited by a second contributor. After playing this game the first contributor is allowed to punish the second contributor. The consequences of sanctioning depend on the treatment: whereas punishment can reduce inequality in one treatment, it only creates another inequality in the other. To capture the effect of delay on punishment both treatments are run once with immediate and once with delayed punishment. Moreover, to investigate the effect of pure voice, all four treatments are also run in a virtual condition with no monetary consequences of punishment. Results show the emergence across all conditions of a strong norm of conditional cooperation. Punishment is generally low, it is higher when not delayed and it is not used to reduce inequality in payoffs. The main motive of sanctioning appears to be the need to punish a violation of the reciprocity norm, irrespective of monetary consequences.

The economic value of a meeting: Evidence from an investment game experiment

The decrease of social distance between subjects and between subjects and experimenters facilitates the deviation from purely selfish behavior in different experimental contexts. Even though the effects of social distance reduction are widely documented, little is known about subjects’ preferences for anonymity, and in particular about the willingness to remove it if they are given the opportunity. In a variant of the investment game we give players the opportunity to decrease the social distance and investigate three main issues: a) how many subjects decide to remove anonymity when this is allowed; b) how this choice is associated with their behavior in the game; c) why should rational subjects opt for removing anonymity. Evidence shows that a significant number of subjects (43.5%) expects to obtain a positive utility by meeting their counterpart and they are ready to risk and/or lose money to get this utility.

Norms and trades: An experimental investigation

In this paper we study how norms of symmetry and centricity affect the functioning of two ways to allocate resources described in the economic anthropology literature, namely reciprocity and redistribution. The baseline reciprocity study, with no explicit priming of the norm of symmetry, features near-zero levels of allocative efficiency. Consistent with the anthropological framework we use throughout, we find that priming the norm of symmetry among the players through pre-play communication dramatically increases efficiency. Next we study a game of redistribution and find that in the final stages of the game allocative efficiency levels consistently approach 100%, regardless of how the chief comes to acquire centricity in the group. We conclude that reciprocity and redistribution can seldom allocate resources efficiently in the absence of norms of symmetry and centricity in the institutional design. By way of comparison, we confirm a robust finding in the experimental economics literature that a simple market exchange game achieves high efficiency, even when the traders can formulate expectations about each other’s compliance with norms.

Tax evasion behavior using finite automata: Experiments in Chile and Italy

In this paper, we use a Moore Automata with Binary Stochastic Output Function in order to capture the extensive decision regarding tax evasion made by subjects in experiments run in Chile and Italy. Firstly, we show how an hypothesis about subject behavior is converted into an automaton, and how we compute the probabilities of evading for every state of an automaton. We use this procedure in order to look for the automaton which is able to anticipate the highest number of decisions made by the subjects during the experiments. Finally, we show that automata with few states perform better than automata with many states, and that the bomb-crater effect described in Mittone (2006) is a well identified pattern of behavior in a subset of subjects.

The Circulation of Worthless Tokens Aids Cooperation: An Experiment Inspired by the Kula

Many anthropological records exist of seemingly worthless tokens exchanged in traditional societies. The most famous instances of such tokens are probably the Kula necklaces and armbands first described by B. Malinowski. In our experiment, each participant can send a token to another participant before each round of a repeated public good game. We use as examples of tokens a bracelet built by the participants in the lab, a simple piece of cardboard provided by the experimenter, and an object brought from home by the participants. Notwithstanding the cheap-talk nature of the decision to send the token, both sending and receiving the token are associated with a significant increase in contributions to the public good. Regression analysis shows that contributions to the public good in the treatments featuring a bracelet and a cardboard piece are higher than in a control study. The home object appears not to have been equally useful in increasing contributions.

Feedback and efficient behavior

Feedback is an effective tool for promoting efficient behavior: it enhances individuals’ awareness of choice consequences in complex settings. Our study aims to isolate the mechanisms underlying the effects of feedback on achieving efficient behavior in a controlled environment. We design a laboratory experiment in which individuals are not aware of the consequences of different alternatives and, thus, cannot easily identify the efficient ones. We introduce feedback as a mechanism to enhance the awareness of consequences and to stimulate exploration and search for efficient alternatives. We assess the efficacy of three different types of intervention: provision of social information, manipulation of the frequency, and framing of feedback. We find that feedback is most effective when it is framed in terms of losses, that it reduces efficiency when it includes information about inefficient peers’ behavior, and that a lower frequency of feedback does not disrupt efficiency. By quantifying the effect of different types of feedback, our study suggests useful insights for policymakers.