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Tax Compliance Policy Reconsidered

Author

Listed:
  • Bruno S. Frey

    (Institute for Empirical Economic Research, University of Z³rich, Z³rich, Switzerland)

  • Manfred J. Holler

    (Institute of Economics, University of Hamburg, Hamburg, Germany)

Abstract

Strong empirical evidence suggests that, contrary to standard criminal choice theory, deterrence does not increase tax compliance. A model based on a peculiarity of the mixed-strategy Nash equilibrium in 2-by-2 games is used to explain this observation theoretically: The strategy choice of a player is not affected by the changes in his or her payoffs induced by deterrence. Moreover, as empirical observations show that increased deterrence tends to undermine tax morale under relevant conditions, it follows that tax policy should not so much try to deter but should make an effort to maintain and raise citizens' tax morale.

Suggested Citation

  • Bruno S. Frey & Manfred J. Holler, 1998. "Tax Compliance Policy Reconsidered," Homo Oeconomicus, Institute of SocioEconomics, vol. 15, pages 27-45.
    • Handle: RePEc:hom:homoec:v:15:y:1998:p:27-45
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    Citations

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    Cited by:

    1. Maciej A. Górecki & Natalia Letki, 2021. "Social Norms Moderate the Effect of Tax System on Tax Evasion: Evidence from a Large-Scale Survey Experiment," Journal of Business Ethics, Springer, vol. 172(4), pages 727-746, September.
    2. Shidiqi, khalifany ash & Pradiptyo, rimawan, 2011. "A game theoretical analysis of economic sanction," MPRA Paper 30481, University Library of Munich, Germany.
    3. Manfred Holler & Peter Skott, 2005. "Election campaigns, agenda setting and electoral outcomes," Public Choice, Springer, vol. 125(1), pages 215-228, July.
    4. Torgler, Benno, 2003. "To evade taxes or not to evade: that is the question," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(3), pages 283-302, July.
    5. Holler Manfred J., 2002. "Classical, Modern, and New Game Theory / Klassische, Moderne und Neue Spieltheorie," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 222(5), pages 556-583, October.
    6. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    7. Manfred J. Holler & Martin A. Leroch, 2014. "Theories of justice and empirical results," Chapters, in: Francesco Forte & Ram Mudambi & Pietro Maria Navarra (ed.), A Handbook of Alternative Theories of Public Economics, chapter 6, pages 143-159, Edward Elgar Publishing.

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