Why do People Pay Taxes? Explaining Tax Compliance by Individuals

Abstract

This chapter surveys the literature on a long-standing puzzle: why and under what conditions do individuals fulfil their tax obligations? We focus on experimental studies examining the extent to which individuals’ motivation to pay taxes is affected by factors at the micro level (such as individual demographic traits and response to incentives), the meso level (such as social norms and group cohesion), and the macro level (such as institutional effectiveness and policies). We point out questions that remain unanswered, and suggest avenues for future research, along with policy implications.