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Why Pay Taxes? A Review of Tax Compliance Decisions

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Author Info
Erich Kirchler () (University of Vienna, Faculty of Psychology)
Stephan Muehlbacher
Barbara Kastlunger
Ingrid Wahl
Abstract

Since the standard model of income tax evasion (Allingham & Sandmo, 1972; Srinivasan, 1973) was published, much research has tested its four parameters (level of actual income, tax rate, audit probability, penalty rate) for empirical validity. Surveys, laboratory experiments and analysis of aggregate data revealed ambiguous evidence for the model’s behavioral implications. The present article reviews these studies and concludes that compliance decisions can only partly be explained by the rational choice approach. We suggest that depending on the climate in a society, compliance stems from two different factors. In a climate of distrust, high power of authorities is needed to enforce tax compliance and increasing fines and audit probabilities may be an effective tax policy. In a climate where taxpayers trust the authorities of their state, however, other variables gain in importance. Knowledge, attitudes, moral appeals, fairness and democracy may lead to voluntary compliance. In this case, draconian fines and intrusive audits can take unintentional effects and would corrupt tax morale.

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Paper provided by International Studies Program, Andrew Young School of Policy Studies, Georgia State University in its series International Studies Program Working Paper Series, at AYSPS, GSU with number paper0730.

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Length: 31 pages
Date of creation: 01 Dec 2007
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Handle: RePEc:ays:ispwps:paper0730

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Related research
Keywords: compliance decisions; tax evasion; audits; fines; trust;

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    Other versions:
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