Enhancing Tax Compliance Through Coercive and Legitimate Power of Tax Authorities by Concurrently Diminishing or Facilitating Trust in Tax Authorities

24 Pages Posted: 19 Jun 2014

See all articles by Eva B. Hofmann

Eva B. Hofmann

University of Vienna

Katharina Gangl

University of Goettingen (Gottingen); Zeppelin University

Erich Kirchler

University of Vienna - Faculty of Psychology

Jennifer Stark

Department of Applied Psychology: Work, Education, Economy

Date Written: July 2014

Abstract

Both coercion, such as strict auditing and the use of fines, and legitimate procedures, such as assistance by tax authorities, are often discussed as means of enhancing tax compliance. However, the psychological mechanisms that determine the effectiveness of each strategy are not clear. Although highly relevant, there is rare empirical literature examining the effects of both strategies applied in combination. It is assumed that coercion decreases implicit trust in tax authorities, leading to the perception of a hostile antagonistic tax climate and enforced tax compliance. Conversely, it is suggested that legitimate power increases reason‐based trust in the tax authorities, leading to the perception of a service climate and eventually to voluntary cooperation. The combination of both strategies is assumed to cause greater levels of intended compliance than each strategy alone. We conducted two experimental studies with convenience samples of 261 taxpayers overall. The studies describe tax authorities as having low or high coercive power (e.g., imposing lenient or severe sanctions) and/or low or high legitimate power (e.g., having nontransparent or transparent procedures). Data analyses provide supportive evidence for the assumptions regarding the impact on intended tax compliance. Coercive power did not reduce implicit trust in tax authorities; however, it had an effect on reason‐based trust, interaction climate, and intended tax compliance if applied solely. When wielded in combination with legitimate power, it had no effect.

Suggested Citation

Hofmann, Eva B. and Gangl, Katharina and Kirchler, Erich and Stark, Jennifer, Enhancing Tax Compliance Through Coercive and Legitimate Power of Tax Authorities by Concurrently Diminishing or Facilitating Trust in Tax Authorities (July 2014). Law & Policy, Vol. 36, Issue 3, pp. 290-313, 2014. Available at SSRN: https://ssrn.com/abstract=2456862 or http://dx.doi.org/10.1111/lapo.12021

Eva B. Hofmann (Contact Author)

University of Vienna ( email )

Christies gate 12
Bergen, 5015
Austria
00431427747336 (Phone)

HOME PAGE: http://homepage.univie.ac.at/eva.hofmann/

Katharina Gangl

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Zeppelin University ( email )

Am Seemooser Horn 20
Friedrichshafen, Lake Constance 88045
Germany

Erich Kirchler

University of Vienna - Faculty of Psychology ( email )

Universitaetsstrasse 7
Vienna, A-1010
Austria
+43 1 42 7747332 (Phone)
+43 1 42 7747339 (Fax)

HOME PAGE: http://homepage.univie.ac.at/erich.kirchler

Jennifer Stark

Department of Applied Psychology: Work, Education, Economy ( email )

Universitaetsstrasse 7
Vienna, A-1010
Austria

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