Stephan Muehlbacher

Tax Compliance by Trust and Power of Authorities

The following is a summary of Kirchler et al.’s (2008a) framework for tax compliance. The ‘slippery slope’ framework distinguishes two forms of compliance. Whereas voluntary compliance is driven by trust in tax authorities, enforced compliance depends on the power of authorities. It is assumed, however, that the interplay of trust and power is crucial for both forms of compliance. The framework serves as a guideline for tax research and tax policy.

Cooperative Tax Compliance From Deterrence to Deference

The prevailing neoclassical economic view in tax-behavior research is that trust is good, but control is better. The advice for combating tax evasion is to deter illegal behavior with rigid audits and harsh fines. But control and punishment may have unintended side effects; therefore, psychological variables (e.g., attitudes toward taxation, social norms, and perceived fairness) are receiving increased attention. The slippery-slope framework integrates both economic and psychological perspectives on tax compliance. It assumes that taxpayers abide by the law either because they fear detection and fines (enforced compliance) or because they feel an obligation to honestly contribute their share (voluntary cooperation). Whereas enforced compliance depends on the power of authorities, voluntary cooperation originates from taxpayers’ trust in the authorities. A growing body of empirical research supports this framework’s assumptions. The psychological approach to tax behavior has led to a change in tax authorities’ practices for regulating citizen behavior. Under the labels of “enhanced relationships,” “horizontal monitoring,” and “fair-play initiatives,” several European countries are advancing cooperative strategies with taxpayers.

'How Can I Help You?' Perceived Service Orientation of Tax Authorities and Tax Compliance

Research on tax behavior has recognized the necessity of changing tax authorities’ approach from enforcement to service orientation. However, empirical investigations of the impact of perceived service orientation on tax compliance are scarce. The present study draws conclusions from survey data of representative samples of 807 Dutch private taxpayers and 1377 entrepreneurs. Perceived service orientation was found strongly related to tax compliance. Furthermore, the link between perceived service orientation and tax compliance is mediated by perceived trustworthiness of authorities. We are confident that taxpayers who perceive a greater service orientation will be more willing to contribute their taxes.

Combining Psychology and Economics in the Analysis of Compliance: From Enforcement to Cooperation

In tax compliance research, there has been a significant shift in research paradigms, from an emphasis on enforcement to approaches that stress cooperation. In this paper, we trace this shift. We first describe the major “actors” in the tax compliance game and their complex interactions. Second, we examine various perspectives on the compliance decisions of individuals, starting with “economic” factors and then moving to factors based more on “psychology”, like social norms, fairness, and social interactions. Third, we present the “slippery slope” framework as a unifying framework. We conclude with recommendations based on this framework that have been shown to improve compliance.

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.

Hard-Earned Income and Tax Compliance: A Survey in Eight Nations

Is the effort invested to achieve taxable income a relevant factor for tax compliance? If the value of income increases with the effort exerted, reluctance to pay taxes should be high. On the other hand, if income is perceived as compensation for one’s endeavor, there is too much at stake to take the risk of being audited and paying a fine. Consequently, tax evasion should be more likely if income was obtained easily. These contradicting predictions were tested in a questionnaire study with samples from eight countries (Australia, Austria, England, France, Italy, New Zealand, Spain and Switzerland; N = 1,223). Results show that the effort exerted to obtain taxable income and the aspiration level matter in compliance decisions. Hard-earned money is more likely to be reported honestly to tax authorities, particularly if the aspiration level can be satisfied by honest tax reporting.

Mental Accounting and Tax Compliance Experimental Evidence for the Effect of Mental Segregation of Tax Due and Revenue on Compliance

Taxes are a burdensome and tedious issue for self-employed who have just started their business. The present research suggests mental accounting as a measure for self-employed to keep track of their financial activities. Based on prospect theory, we argue that the mental segregation of taxes due from net income affects a taxpayer’s reference point in the compliance decision and results in higher tax compliance. Findings from a laboratory experiment confirm this prediction. Further, we show that relevance of mental tax accounting is higher when the tax due is not specified externally as it is the case in pay slips provided to employees. The individual tendency toward mental segregation of tax due and net income is positively related to the sex and age of respondents, their attitudes toward taxpaying, and their experiences gathered in the course of the experiment.

Mental Accounting of Self-Employed Taxpayers: On the Mental Segregation of the Net Income and the Tax Due

Mental accounting practices of self-employed taxpayers are investigated in two studies. Interviews (N=30) revealed that perceptions of the tax due differ widely. While a majority seems to mentally segregate the tax component from their net income, others claim ownership of the gross income as a whole and consequently experience a loss when paying taxes. A survey (N=172) shows that mental segregation is associated with age, income, and number of employees, and is further related to attitudes towards taxes and self-reported compliance. It is concluded that especially inexperienced self-employed should be trained in favorable mental tax accounting practices to foster their voluntary compliance.

Arbeitsaufwand, Anspruchsniveau und Steuerehrlichkeit

Untersucht wird, ob der Arbeitsaufwand, mit dem steuerpflichtiges Einkommen erzielt wurde, und das daraus resultierende Anspruchsniveau Entscheidungen zur Steuerehrlichkeit beeinflussen. Aus der Literatur lassen sich zwei konkurrierende Hypothesen ableiten. Einerseits konnten mit hohem Aufwand der subjektive Wert des Einkommens steigen und Steuern somit besonders belastend erlebt werden. Andererseits ist anzunehmen, dass gerade bei hohem Arbeitsaufwand nicht riskiert wird, fur unvollstandige Deklaration Strafe zu zahlen und letztlich weniger fur die erbrachte Leistung zu erhalten als bei ordnungsgemaser Deklaration. In der ersten Studie trafen 113 Teilnehmer eine Hinterziehungsentscheidung, nachdem ihnen das zu versteuernde Nettoeinkommen als leicht bzw. hart verdient beschrieben wurde. In der zweiten Studie trafen 155 Teilnehmer dieselbe Entscheidung. Dabei wurde neben dem Arbeitsaufwand auch das Anspruchsniveau manipuliert, definiert als Erwartung eines Einkommens in spezifischer Hohe. In beiden Studien...

Une typologie des contribuables travailleurs indépendants basée sur les attitudes motivationnelles

A representative sample of 471 Austrian self-employed taxpayers was investigated and types of taxpayers selected on the basis of their motivational postures were extracted. By means of a cluster analysis four basic clusters of taxpayers were identified. ‘Solidary’ taxpayers pay their taxes because they perceive the tax system as fair. ‘Non-solidary’ taxpayers experience their tax burden as unfair. ‘Critical’ taxpayers feel unfairly treated and show high resistance but do not necessarily react by evading taxes. ‘Strategic’ taxpayers feel fairly treated but still try to reduce their tax burden if they perceive the opportunity to do so. The results show that positive and negative attitudes, respectively, to taxes do not necessarily lead to tax compliance or tax evasion. Cooperative and uncooperative behaviour originates from different motives.