Hostname: page-component-669899f699-swprf Total loading time: 0 Render date: 2025-04-29T02:48:48.690Z Has data issue: false hasContentIssue false
  • English
  • Français

Tax compliance and obedience to authority at home and in the lab: A new experimental approach

Published online by Cambridge University Press:  14 March 2025

C. Bram Cadsby ,
Elizabeth Maynes  and
Viswanath Umashanker Trivedi
C. Bram Cadsby*
Affiliation:
Department of Economics, University of Guelph, Guelph, ON N1G 2W1, Canada
Elizabeth Maynes*
Affiliation:
Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3, Canada
Viswanath Umashanker Trivedi*
Affiliation:
Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3, Canada
*
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

In most experimental studies of tax evasion, participants are instructed that they may report any amount of income from zero up to the amount they actually earned or received. This amounts to an invitation to gamble. In contrast, real-world tax authorities unambiguously demand compliance. We develop two new settings for conducting tax experiments. Both involve an explicit demand for compliance. Thus, we can determine whether knowing that the experimental authority would regard evasion as wrongful disobedience will influence compliance decisions. We demonstrate that simply telling people that they are required to pay a “participation fee” analogous to a tax produces remarkably high compliance rates and less sensitivity to changes in economic variables than in the earlier experimental literature using invitation-to-gamble language. This suggests that many people pay taxes despite the financial attraction of non-compliance because they are strongly inclined towards obeying authority. Furthermore, we show that giving participants a week to make their reporting decisions at home without an authority figure physically present overcomes the inclination to obey for some people, significantly lowering compliance rates. However, the majority still complies, even after the audit rate falls from 25% to 1%, which would make noncompliance extremely attractive if it were viewed only as a simple matter of risk and expected return.

Keywords

TaxComplianceEvasionExperimentObedience

JEL classification

C91: Laboratory, Individual Behavior H26: Tax Evasion and Avoidance
Type
Research Article
Information
Experimental Economics , Volume 9 , Issue 4 , December 2006 , pp. 343 - 359
Copyright
Copyright © 2006 Economic Science Association

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

Footnotes

Electronic Supplementary Material Supplementary material is available in the online version of this article at http://dx.doi.org/10.1007/s10683-006-7053-8.

References

Akerlof, G. (1991). “Procrastination and Obedience.” American Economic Review. 91, 1–19.Google Scholar
Allingham, M. G., & Sandmo, A. (1972). “Income Tax Evasion: A Theoretical Analysis.” Journal of Public Economics. 1, 323–338.CrossRefGoogle Scholar
Alm, J., Cronshaw, M., & McKee, M. (1993a). “Tax Compliance with Endogenous Audit Selection Rules.”. Kyklos. 46, 27–45.CrossRefGoogle Scholar
Alm, J., Jackson, B., & McKee, M. (1992a). “Institutional Uncertainty and Taxpayer Compliance.” American Economic Review. 82, 1018–1026.Google Scholar
Alm, J., Jackson, B., & McKee, M. (1992b). “Estimating the Determinants of Taxpayer Compliance with Experimental Data.” National Tax Journal. 45, 107–114.CrossRefGoogle Scholar
Alm, J., Jackson, B., & McKee, M. (1993b). “Fiscal Exchange, Collective Decision Institutions and Tax Compliance.” Journal of Economic Behavior and Organization. 22, 285–303.CrossRefGoogle Scholar
Alm, J., McClelland, G. H., & Schulze, W. D. (1992c). “Why Do People Pay Taxes?” Journal of Public Economics. 48, 21–38.CrossRefGoogle Scholar
Alm, J., McKee, M., & Beck, W. (1990). “Amazing Grace: Tax Amnesties and Compliance.” National Tax Journal. 43, 23–37.CrossRefGoogle Scholar
Alm, J., Sanchez, I., & de Juan, A. (1995). “Economic and Noneconomic Factors in Tax Compliance.” Kyklos. 48, 3–18.CrossRefGoogle Scholar
Alm, J., McClelland, G. H., & Schulze, W. D. (1999). “Changing the Social Norm of Tax Compliance by Voting.” Kyklos. 52, 141–171.CrossRefGoogle Scholar
Beron, K. J., Tauchen, H. V., & Witte, A. D. (1992). “The Effect of Audits and Socioeconomic Variables on Compliance.” In: Slemrod, J. (ed.), Why People Pay Taxes: Tax Compliance and Enforcement. Ann Arbor: The University of Michigan Press, pp. 67–89.Google Scholar
Boylan, S.J., & Sprinkle, G. B. (2001). “Experimental Evidence on the Relation between Tax Rates and Compliance: The Effect of Earned Versus Endowed Income.” Journal of the American Taxation Association. 23, 75–90.CrossRefGoogle Scholar
Cialdini, R. B. (2001). Influence: Science and Practice. Fourth Edition. Boston: Allyn and Bacon.Google Scholar
Elffers, H. (2000). “But Taxpayers Do Cooperate!” In: Van Vugt, M., Snyder, M., Tyler, T. R., & Biel, A. (eds.), Cooperation inModern Society: Promoting the Welfare of Communities, States and Organizations. London: Routledge, pp. 184–94.Google Scholar
Feld, L.P., & Tyran, J. R. (2002). “Tax Evasion and Voting: An Experimental Analysis.” Kyklos. 55, 197–221.CrossRefGoogle Scholar
Graetz, M. J., & Wilde, L. (1985). “The Economics of Tax Compliance: Fact and Fantasy.” National Tax Journal. 38, 355–363.CrossRefGoogle Scholar
Hoffman, E., & Spitzer, M. L. (1985). “Entitlements, Rights, and Fairness: An Experimental Examination of Subjects’ Concepts of Distributive Justice.” Journal of Legal Studies. 14, 259–297.CrossRefGoogle Scholar
Kilham, W., & Mann, L. (1974). “Level of Destructive Obedience as a Function of Transmitter and Executant Roles in the Milgram Obedience Paradigm.” Journal of Personality and Social Psychology. 29, 696–702.CrossRefGoogle ScholarPubMed
Kinsey, K. A. (1992). “Deterrence and Alienation Effects of IRS Enforcement: An Analysis of Survey Data.” In: Slemrod, J. (ed.), Why People Pay Taxes: Tax Compliance and Enforcement. Ann Arbor: The University of Michigan Press, pp. 259–285.Google Scholar
Long, S., & Swingen, J. (1991) “The Conduct of Tax-Evasion Experiments: Validation, Analytical Methods, and Experimental Realism.” In: Webley, P., Robben, H., Elffers, H., & Hessing, D. (eds.), Tax Evasion: An Experimental Approach. Cambridge: Cambridge University Press, pp. 128–38.Google Scholar
Meeus, W.H.J., & Raaijmakers, Q.A.W. (1995). “Obedience in Modern Society: The Utrecht Studies.” Journal of Social Issues. 51, 155–175.CrossRefGoogle Scholar
Milgram, S. (1963). “Behavioral Study of Obedience.” Journal of Abnormal and Social Psychology. 67, 371–378.CrossRefGoogle ScholarPubMed
Milgram, S. (1974). Obedience to Authority: An Experimental View. New York: Harper and Row.Google Scholar
Moser, D.V., Evans, J.H. III, & Kim, C.K. (1995). “The Effects of Horizontal and Exchange Inequity on Tax Reporting Decisions.” The Accounting Review. 70, 619–634.Google Scholar
Scholz, J. T., & Pinney, N. (1995). “Duty, Fear, and Tax Compliance: The Heuristic Basis of Citizenship Behavior.” American Journal of Political Science. 39, 490–512.CrossRefGoogle Scholar
Skinner, J., & Slemrod, J. (1985). “An Economic Perspective on Tax Evasion.” National Tax Journal. 38, 345–353.CrossRefGoogle Scholar
Smith, K. W. (1992). “Reciprocity and Fairness: Positive Incentives for Tax Compliance.” In: Slemrod, J. (ed.), Why People Pay Taxes: Tax Compliance and Enforcement. Ann Arbor: The University of Michigan Press, pp. 223–250.Google Scholar
Spicer, M., & Becker, L.. (1980). “Fiscal Inequity and Tax Evasion: An Experimental Approach.” National Tax Journal. 33, 171–175.CrossRefGoogle Scholar
Spicer, M. W., & Hero, R. E. (1985). “Tax Evasion and Heuristics”. Journal of Public Economics. 26, 263–267.CrossRefGoogle Scholar
Steenbergen, M. R., McGraw, K. M., & Scholz, J. T. (1992). “Taxpayer Adaptation to the 1986 Tax Reform Act: Do New Tax Laws Affect the Way Taxpayers Think About Taxes?” In: Slemrod, J. (ed.), Why People Pay Taxes: Tax Compliance and Enforcement. Ann Arbor: The University of Michigan Press, pp. 9–37.Google Scholar
Torgler, B. (2002). “Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments.” Journal of Economic Surveys. 16, 657–683.CrossRefGoogle Scholar
Trivedi, V. U., & Chung, J. (2006). “The Impact of Compensation Level and Context on Income Reporting Behavior in the Laboratory.” Behavioral Research in Accounting (forthcoming).CrossRefGoogle Scholar
Wartick, M. L., Madeo, S. A., & Vines, C. C. (1999). “Reward Dominance in Tax Reporting Experiments: The Role of Context.” The Journal of the American Taxation Association. 21, 20–31.CrossRefGoogle Scholar
Webley, P., & Halstead, S. (1986). “Tax Evasion on the Micro: Significant Simulations or Expedient Experiments?” Journal of Interdisciplinary Economics. 1, 87–100.CrossRefGoogle Scholar
Yitzhaki, S. (1974). “A Note on Income Tax Evasion: A Theoretical Analysis.” Journal of Public Economics. 3, 201–202.CrossRefGoogle Scholar
Supplementary material: File

Cadsby et al. supplementary material

Cadsby et al. supplementary material 1
Download Cadsby et al. supplementary material(File)
File 76.8 KB
Supplementary material: File

Cadsby et al. supplementary material

Cadsby et al. supplementary material 2
Download Cadsby et al. supplementary material(File)
File 71.9 KB
Supplementary material: File

Cadsby et al. supplementary material

Cadsby et al. supplementary material 3
Download Cadsby et al. supplementary material(File)
File 73 KB