Regulation and Dishonest Behavior: How Controlling Regulatory Mechanisms Prompt Dishonesty in Tax Consulting

Florida Tax Review, Forthcoming

28 Pages Posted: 19 Oct 2020

See all articles by Ilanit Gavious

Ilanit Gavious

Ben-Gurion University of the Negev

Yaron Lahav

Ben-Gurion University of the Negev

Hagit Weihs

Brandeis University - International Business School

Date Written: August 26, 2020

Abstract

We study experimentally how the conflict of interest faced by tax consultants – between telling the truth and pleasing their clients – affects their professional decision-making process, under different levels of scrutiny in the form of an audit. Eighty percent of the experiment’s participants exhibited dishonest behavior. The possibility of being audited by the tax authorities significantly affected the decision-making process of participants when acting dishonestly. While this possibility improved the consulting quality at the beginning of the process, more manipulative efforts followed, leading to an end result similar to that observed in the absence of the risk of an audit. Remarkably, the manipulative efforts increased with the likelihood of an audit.

Keywords: Conflict of Interest, Consulting, Dishonesty, Tax, Transfer Pricing

JEL Classification: C91, D81, F23, H25, H26, K34

Suggested Citation

Gavious, Ilanit and Lahav, Yaron and Weihs, Hagit, Regulation and Dishonest Behavior: How Controlling Regulatory Mechanisms Prompt Dishonesty in Tax Consulting (August 26, 2020). Florida Tax Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3675361 or http://dx.doi.org/10.2139/ssrn.3675361

Ilanit Gavious

Ben-Gurion University of the Negev ( email )

1 Ben-Gurion Blvd
Beer-Sheva 84105, 84105
Israel

Yaron Lahav (Contact Author)

Ben-Gurion University of the Negev ( email )

Department of Business Administration
P.O. Box 653
Beer Sheva 84105, 84105
Israel
972-8-6479738 (Phone)
972-8-6477691 (Fax)

HOME PAGE: http://www.yaronlahav.com

Hagit Weihs

Brandeis University - International Business School ( email )

Mailstop 32
Waltham, MA 02454-9110
United States

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