We examine whether a taxpayer’s decision to choose a taxpayer-favorable (vs. a taxpayer-unfavorable) characterization of income is associated with contextual and individual dimensions of that decision. Using a 2 × 2 factorial experimental design, we manipulate the prevailing social norm on whether there is a general belief that a specific form of income should be characterized as a capital gain (taxed at a lower tax rate and hence taxpayer favorable) or as ordinary income (taxed at a higher tax rate and (...) hence taxpayer unfavorable), and the group affiliation on whether the individual is making a tax characterization decision as a sole proprietor or as a member of a group practice. Moreover, we measure participants’ fairness perception of characterizing the income as capital gains versus ordinary. We study the decisions of 180 graduate business and accounting students from two US business schools to explore these dimensions using a tax-ambiguous income situation. Results indicate that both contextual and individual dimensions impact taxpayer decisions. Specifically, the social norm and fairness perception of characterizing income as capital gains affects the likelihood of choosing such a characterization. Being a sole proprietor or a member of a group practice does not have any significant main effect. However, relative to all other conditions, taxpayers are most likely to characterize income as capital gains when both the social norms are for capital gains characterization and when the taxpayer is a member of a group practice. Results remain largely robust to a variety of alternative explanations. We conclude the paper with a discussion of our findings and their implications for tax policy, enforcement, and research. (shrink)

Increasing the tax compliance of self-employed business owners—particularly of trade-specific service providers such as those involved in construction and repair work—remains an ongoing challenge for tax authorities. From a compliance point of view, cash transactions are particularly problematic when services are paid for on the spot, as these exchanges are difficult to audit. We present experimental evidence testing ten different policy strategies rooted in the enforcement, service, and trust/social paradigms, in a setting that allows payment either via a transaction that (...) directly reports income for tax collection purposes or in cash, where taxes are only collected on reported income. Our sample includes both a typical subject pool of students, as used in most previous studies, and non-students who are active within service industries characterised by the opportunity to engage in cash transactions. While our comparative results show that, for both student and non-student participants, interventions that rely on greater enforcement by the tax authority have the greatest effect on compliance in our cash economy setting, treatments involving cooperative elements may be similarly effective in enhancing tax compliance. Given their effectiveness, cooperative approaches should therefore be considered for addition to the policy mix if implemented at relatively low costs, making both carrot and stick approaches promising to increase compliance in an environment where cash-for-service payments offer a common benefit for small businesses and their customers from implicit collusion that enables tax evasion. (shrink)

The purpose of this study is to explore with more rigor and detail the role of social norms in tax compliance. This study draws on Cialdini and Trost’s (The Handbook of Social Psychology: Oxford University Press, Boston, MA, 1998) taxonomy of social norms to investigate with more specificity this potentially decisive (Alm and McKee, Managerial and Decision Economics, 19:259–275, 1998) influence on tax compliance. We test our research hypotheses regarding the direct and indirect influences of social norms using a hypothetical (...) compliance scenario with 174 experienced taxpayers as participants. Factor analysis of the social norm questions successfully identified four distinct social norm constructs, in line with Cialdini and Trost (1998). Results of the path analysis show that individuals’ standards for behavior/ethical beliefs (personal norms) as well as the expectations of close others (subjective norms) directly influence tax compliance decisions, whereas general societal expectations (injunctive norms) and other individuals’ actual behavior (descriptive norms) have an indirect influence. This shows that social norms have important direct as well as indirect influences on tax compliance behavior. We also investigate a number of attitudinal variables that may be related to social norms and taxpayer compliance. The results of this study further clarify the important role that social norms have with regard to taxpayers’ compliance behavior. (shrink)

This manuscript proposes that tax avoidance can be better understood and mitigated as a sustainability problem. Tax avoidance is not just a financial problem for tax authorities, but one that erodes critical common spaces necessary for the smooth functioning of regulatory compliance, organizational integrity, and society. Defining tax avoidance as a sustainability problem offers a broader and more holistic understanding of the organizational and societal consequences of tax avoidance behavior. Sustainability is also a mature and legitimized concept that can readily (...) incorporate taxation. A variety of established sustainability metrics have the capacity to incorporate anti-tax avoidance measures or publicize firms that engage in fair tax practices. This manuscript concludes that integrating sustainability principles, in conjunction with important extant work on corporate social responsibility and taxation, can advance the goals of decreasing the occurrence and acceptability of tax avoidance. (shrink)

In the last decade, advances in technology have significantly disrupted the way firms provide goods and services. At the forefront of this technological disruption is the sharing economy, where individuals earn income by providing services or sharing assets through peer-to-peer platforms. With global revenues in the sharing economy projected to increase substantially in the next decade, income from this economy will continue to be an important source of tax revenues for governments around the world. However, sceptics argue that the sharing (...) economy inherently lends itself to dishonest reporting of taxable income. We employ an online experiment, using 746 taxpayers, to observe whether the prosocial benefits often promoted by P2P platforms reduce honest reporting of taxable sharing economy income. Consistent with moral licensing theory, we find that earning income from a prosocial-oriented P2P platform liberates taxpayers to dishonestly report their sharing economy income, and this result is fully driven by taxpayers whose personal values are incongruent with values promoted by the P2P platform. Our paper contributes to the limited but growing research on the sharing economy and its implications for ethical decisions. It also adds to the moral licensing literature by identifying value congruency as an important moderator for moral licensing effect. (shrink)

Tax compliance has been extensively researched. Yet, the classic question ‘why do people pay taxes?’ remains unanswered. In Jordan, tax evasion is widespread. The state and citizens have been trapped in a continuous hide-and-seek game, which has taken the form of a virtuous cycle. This paper investigates tax evasion along with the most noticeable features of the Jordanian tax system. It also highlights how the virtuous cycle of tax evasion has been established and what could possibly be a way out (...) of it. We argue that sociocultural values are the most prominent cause for tax evasion. That is, the procedures of state formation and functionality in Jordan have created mutual distrust between the state and its citizens. Having been raised in a community characterized by deep distrust, tax evasion is no longer considered immoral by substantial numbers of the Jordanian population. We argue that successive governments need to create a high-trust-based culture and formulate strategies that serve to acquire normative ethical values in order to enhance voluntary compliance. The way to accomplish this necessity is through enforcing the state’s transparency and accountability. The taxation system needs to concentrate on income tax rather than raise tax rates on essential commodities to collect substantial tax revenues. Thus, further reform of the taxation system along with a reduction in tax incentives need to be considered. Moreover, lowering the exceptionally high personal income tax threshold would bring Jordan in line with its peers, expand the base, and introduce more progressivity. There would also be a scope to introduce a minimum tax based on sales as a tool to address tax evasion. (shrink)

This study examines how taxpayer support for government spending can improve tax compliance. While there is ample evidence on the deterrent effect of audit probability on taxpayer noncompliance, there is no evidence related to the moderating role that taxpayer support may have on compliance behavior. We also examine the moderating role that taxpayer ethics plays in compliance decisions. Results of our study indicate that the level of taxpayer support influences taxpayer compliance decisions, in that those with greater support for how (...) tax dollars are spent report higher amounts of taxable income. In addition, we find that audit probability influences taxpayer compliance decisions when there is support for the government’s use of tax dollars for non-welfare programs, such as defense. However, for welfare programs, such as healthcare, taxpayer support leads to increased compliance regardless of audit rate. When taxpayers do not support government programs, their compliance is lower regardless of the audit probability. This highlights the importance of gaining taxpayer support for government programs and indicates that attempts to align the interests of taxpayers with those of the government may increase voluntary compliance among taxpayers. Finally, we find that taxpayer ethics influences compliance such that, for individuals who have lower ethical standards, a high audit rate as well as support for a program may be necessary to improve compliance behavior. Theoretical and practical implications of these findings are discussed. (shrink)

We examine whether a taxpayer’s decision to choose a taxpayer-favorable characterization of income is associated with contextual and individual dimensions of that decision. Using a 2 × 2 factorial experimental design, we manipulate the prevailing social norm on whether there is a general belief that a specific form of income should be characterized as a capital gain or as ordinary income, and the group affiliation on whether the individual is making a tax characterization decision as a sole proprietor or as (...) a member of a group practice. Moreover, we measure participants’ fairness perception of characterizing the income as capital gains versus ordinary. We study the decisions of 180 graduate business and accounting students from two US business schools to explore these dimensions using a tax-ambiguous income situation. Results indicate that both contextual and individual dimensions impact taxpayer decisions. Specifically, the social norm and fairness perception of characterizing income as capital gains affects the likelihood of choosing such a characterization. Being a sole proprietor or a member of a group practice does not have any significant main effect. However, relative to all other conditions, taxpayers are most likely to characterize income as capital gains when both the social norms are for capital gains characterization and when the taxpayer is a member of a group practice. Results remain largely robust to a variety of alternative explanations. We conclude the paper with a discussion of our findings and their implications for tax policy, enforcement, and research. (shrink)

Tax administrators are empowered by the state to secure compliance with tax obligations. Enforcing compliance on the ground is complex, and street-level administrators often engage in the “art of the possible,” leading to dilemmas in the field. This paper examines tax administrators’ practices with regard to Jamaican property tax defaulters with outstanding tax liabilities in excess of 3 years. Drawing on interviews with tax administrators and other key agents, we find that tax administrators reposition themselves from objective enforcers to empathizing (...) officials engaging in schemes of action, doing what they can do rather than what they should do. This is a practical-sense approach to securing compliance. We identify two forms of empathy, assimilated and cynical, and conclude that administrators’ empathetic identification with defaulters does not necessarily arise solely from concern for social cohesion, or inter-subjective compassion, but also sometimes from self-interest. (shrink)

Although the role of fairness in tax compliance has been of increasing interest among the academic and professional tax communities, very little is known about the role of interactional fairness. Interactional fairness refers to the quality of the treatment provided to individuals from authority figures, such as tax authority representatives. We conduct an experiment using US taxpayers to examine the role of interactional fairness on tax compliance intentions, and how detection influences this relation. Taxpayers’ detection salience reflects their perceptions that (...) they will be audited by the tax authority. Using insights from conditional cooperation theory, we predict and find that detection moderates the relation between interactional fairness and tax compliance intentions, such that the effect of interactional fairness on tax compliance intentions diminishes with higher detection. We discuss the implications of our results for tax policy. (shrink)

This article joins a somewhat nascent, but growing, body of scholarship addressing the ethical obligation to pay tax. The analysis is grounded to the ethical duty to obey law generally and highlights two competing orientations to statutory interpretation. The norms of self-interested advocacy suggest that tax planners should assert that interpretation that will generate the most wealth for the client. The norms of professional advising, by contrast, direct the tax planner to interpret tax law with reference to plain meaning, interpretive (...) maxims, court precedents, and legislative purpose. When the two orientations differ, the ethical duty to obey law requires the tax planner to recommend, and for the taxpayer to follow, the latter view. Case studies drawn from a Louisiana sales tax avoidance scheme and from Google’s profit-shifting activities illustrate the ethical issues incumbent in tax interpretation. (shrink)

We present an analysis of over 400 comments about complying with tax obligations extracted from online discussion forums for freelancers. While the topics investigated by much of the literature on taxpayer behaviour are theory driven, we aimed to explore the universe of online discussions about tax in order to extract those topics that are most relevant to taxpayers. The forum discussions were subjected to a qualitative thematic analysis, and we present a model of the ‘universe’ of tax as reflected in (...) taxpayer discussions. The model comprises several main actors and describes the multiple ways in which they relate to taxpayers’ behaviour. We also conduct a more focused analysis to show that the majority of taxpayers seem unconcerned with many of the variables that have been the focus of tax behaviour research, and that most people are motivated to be compliant and are more concerned with how to comply than whether to comply. Moreover, we discuss how these ‘real-world’ tax discussions question common assumptions in the study of tax behaviour and how they inform our understanding of business ethics more generally. (shrink)

Although naming-and-shaming (shaming) is a commonly used tax enforcement mechanism, little is known about the efficacy of shaming tax evaders. Through two experiments, this study examines the effects of shaming tax evaders on third-party observers’ perceptions of retributive justice and tax compliance intentions, and whether the salience of persuasion of observers moderates these relationships. Based on insights from defiance theory, the message learning model, and persuasive communications, this study predicts and finds that shaming evaders increases observers’ tax compliance intentions. Furthermore, (...) the results show that higher persuasion, which includes sanction and normative appeals, affects observers’ tax compliance intentions. This study also suggests that shaming has a positive effect on perceptions of retributive justice. Importantly, the results reveal that perceptions of retributive justice in shaming punishment mediate the effect of shaming on tax compliance intentions. The implications for theory and practice are discussed. (shrink)

In order to understand how the environment influences business owner/managers’ attitudes towards tax morale, we build a theoretical model based on a neo-institutionalist framework. Our model combines three complementary perspectives on institutions—normative, cultural–cognitive and regulatory–instrumental. This enables a broader understanding of factors that influence business owner–managers’ attitudes towards tax evasion. We test the resulting hypotheses using regression analysis on survey data on business owner/managers in Latvia—a transition country, which has undergone massive institutional changes since it was part of the Soviet (...) Union over 25 years ago. We find that legitimacy of the tax authorities and the government, feeling of belonging to the nation and perceptions of the risk and severity of punishment are all associated with higher tax morale for business owners and managers. (shrink)

Businesses that rely heavily on cash transactions have been found to be particularly susceptible to low tax ethics. Recent research indicates that cash is a highly powerful and tempting reward, which elicits a strong emotional response. In this article, we investigate how emotions affect tax ethics in a series of experimental studies. Specifically, we show that affective priming and the ease with which tax information is retrieved moderate tax ethics. We also show that the relative effectiveness of deterrence, such as (...) audit probabilities and tax fines, is moderated by affect. These results point toward a complex picture of tax ethics, requiring a multifaceted policy approach that emphasizes not only enforcement, but also cognitive and affective aspects of human behavior. (shrink)

Using an international sample of firms from 32 countries, we study the relation between media independence and corporate tax aggressiveness. We measure media independence by the extent of private ownership and competition in the media industry. Using an indicator variable for tax aggressiveness when the firm’s corporate tax avoidance measure is within the top quartile of each country-industry combination, we find strong evidence that media independence is associated with a lower likelihood of tax aggressiveness, after controlling for other institutional determinants, (...) including home-country tax system characteristics. We also find that the effect of media independence is more pronounced when the legal environment is weaker, and when the information environment is less transparent. We contribute to the business ethics literature by documenting the role of independent media as an external monitoring mechanism in constraining corporate tax aggressiveness. (shrink)

The relationship between tax authorities and taxpayers is essential for tax compliance. The aim of the present paper was to explore systematically the determinants of this relationship and related tax compliance behaviors based on the extended slippery slope framework. We used in-depth qualitative interviews with 33 self-employed taxpayers and 30 tax auditors. Interviewees described the tax relationship along the extended slippery slope framework concepts of power and trust. However, also novel sub-categories of power (e.g., setting deadlines) and trust (e.g., personal (...) assistance) were mentioned. Furthermore, also little-studied categories of tax behavior emerged, such as accepting tax behavior e.g., being available to the tax authorities, or stalling tax behavior e.g., the intentional creation of complexity. The results comprehensively summarize the determinants of the tax relationship and tax compliance behaviors. Additionally, results highlight future research possibilities and illustrate policy interventions. (shrink)

Although the role of fairness in tax compliance has been of increasing interest among the academic and professional tax communities, very little is known about the role of interactional fairness. Interactional fairness refers to the quality of the treatment provided to individuals from authority figures, such as tax authority representatives. We conduct an experiment using US taxpayers to examine the role of interactional fairness on tax compliance intentions, and how detection influences this relation. Taxpayers’ detection salience reflects their perceptions that (...) they will be audited by the tax authority. Using insights from conditional cooperation theory, we predict and find that detection moderates the relation between interactional fairness and tax compliance intentions, such that the effect of interactional fairness on tax compliance intentions diminishes with higher detection. We discuss the implications of our results for tax policy. (shrink)

Since taking office, the President of the United States has consistently refused to make his tax returns available for public scrutiny. In so doing, he has broken with presidential tradition and kept people guessing about what his tax returns would show if they were disclosed. Interestingly enough, in the absence of concrete knowledge about the President’s tax circumstances, some taxpayers perceive that he did not pay his fair share and others perceive that he did. This situation presents an opportunity for (...) us to consider how vertical equity perceptions about the President’s fair share of taxes, and identification with the President via voting behavior, are jointly associated with taxpayers’ compliance. Using insights from equity theory as reported in Adams Advances in experimental social psychology, Academic Press, New York, 1965) and social learning theory as reported in Bandura, we anticipate and find that those taxpayers who perceive that the President did not pay his fair share of taxes and who most closely socially identify with him have the lowest tax compliance. We use a survey of 600 American taxpayers to capture their perceptions of vertical equity, voting behavior, and tax compliance intentions. Our results may reflect that taxpayers who identify with the President will tend to model his tax-related actions, or may also indicate that some taxpayers vote for a president whose actions are similar to their own. Insights and implications for ethics and tax researchers and tax policy makers are discussed. (shrink)

Guilt is a powerful emotion that is known to influence ethical decision-making. Nevertheless, the role of guilt cognitions in influencing restorative behaviour following an unethical action is not well understood. Guilt cognitions are interrelated beliefs about an individual’s role in a negative event. We experimentally investigate the joint impact of three guilt cognitions—responsibility for a decision, justification for a decision, and foreseeability of consequences—on a taxpayer’s decision to make a tax amnesty disclosure. Tax amnesties encourage delinquent taxpayers to self-correct to (...) avoid severe penalties that would result if their tax evasion were discovered. Our findings suggest a three-way interaction effect such that taxpayers are likely to make tax amnesty disclosures when they foresee that they will be caught by the tax authority, unless they can diffuse responsibility for their evasion and justify their evasion. Implications for tax policy and tax professionals are discussed. (shrink)