More Bang for Your Buck: Tax Compliance in the United States and Italy

Abstract

In the present study, I investigate the relationship between perception of public institutions, trust, and tax compliance using a large tax compliance laboratory experiment conducted in Italy and the United States. I argue that how individuals perceive their public institutions - either as bad or good - is important factor in the tax compliance decision. In the first test, we performed a simple public goods game framed within a tax context to uncover that given the exact same decisions, contributions to the public good do not differ between Italy and the United States. In a second part of the experiment, we ask participants to pay taxes to their national government, pension fund, and fire department. In these rounds, however, behaviors diverge with Italian participants complying significantly less than Americans. Finally, I demonstrate that when equalizing for differences in trust in government, the variation in compliance disappears.