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How income and tax rates provoke cheating – An experimental investigation of tax morale

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  • Grundmann, Susanna
  • Graf Lambsdorff, Johann

Abstract

Anecdotal evidence suggests that tax morale diminishes with income and with levels of taxation. We designed an experiment that enables identification of causal effects. Subjects carry out a sequence of real effort tasks. The income earned varies with individual differences in effort (combined with variances related to skill or luck) and with the exogenously given length of the tasks. For each task, subjects privately roll a die, whose value determines the tax rate, which is then reported by subjects. This provides subjects with an incentive to cheat. Tax morale diminishes with higher effort, which might find ethical justification, but also with longer tasks, which would not. We implement treatments that vary the range of taxation. Contrary to widespread belief, participants’ tax morale is invariant to these treatments. Our findings are best explained by a psychological force that tempts rich people to cheat more. This force does not seem to be related to fairness ideals that are prominent in theories of distributional justice nor to absolute levels of taxation.

Suggested Citation

  • Grundmann, Susanna & Graf Lambsdorff, Johann, 2017. "How income and tax rates provoke cheating – An experimental investigation of tax morale," Journal of Economic Psychology, Elsevier, vol. 63(C), pages 27-42.
  • Handle: RePEc:eee:joepsy:v:63:y:2017:i:c:p:27-42
    DOI: 10.1016/j.joep.2017.10.003
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    Cited by:

    1. Fochmann, Martin & Hechtner, Frank & Kirchler, Erich & Mohr, Peter, 2019. "When happy people make society unhappy: How incidental emotions affect compliance behavior," arqus Discussion Papers in Quantitative Tax Research 237, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Martina Manfre' & Viola Angelini, 2018. "Does The Financial Situation affect Cheating Behavior? An Investigation through Financial Literacy," Working Papers 06/2018, University of Verona, Department of Economics.
    3. Fochmann, Martin & Müller, Nadja & Overesch, Michael, 2018. "Less cheating? The effects of prefilled forms on compliance behavior," arqus Discussion Papers in Quantitative Tax Research 227, arqus - Arbeitskreis Quantitative Steuerlehre.

    More about this item

    Keywords

    Cheating; Taxation; Tax morale; Laboratory experiment; Income; Real-effort task;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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