The Eﬀects of Official and Unoﬃcial Information on Tax Compliance
CAEPR Working Paper Series 2018-004
50 Pages Posted: 8 May 2018
Date Written: March 1, 2018
The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the eﬀects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, ﬁnes and tax rates, subjects have to declare their income after receiving either a communication of the oﬃcial average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We ﬁnd four main results. First, tax compliance is very persistent. Second, the higher the oﬃcial past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unoﬃcial information treatment, are associated, in the context of our experiment, with a signiﬁcantly larger growth in evasion intensity, the aggregate eﬀect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, oﬃcial information can have beneﬁcial eﬀects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, oﬃcial information can have detrimental eﬀects by intensifying the behavior of evaders. In both cases, the impact of oﬃcial information is magniﬁed in the presence of strong peer eﬀects.
Keywords: Tax morale, Information, Tax evasion, Experiment, Peer Eﬀects
JEL Classification: H26; D63; C24; C92; Z13
Suggested Citation: Suggested Citation