IDEAS home Printed from https://ideas.repec.org/a/ifs/fistud/v38y2017ip587-613.html
   My bibliography  Save this article

When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance

Author

Listed:
  • James Alm
  • Kim M. Bloomquist
  • Michael McKee

Abstract

In this paper, we argue that individuals are affected in their compliance behavior by the behavior of their “neighbors”, or those about whom they may have information, whom they may know, or with whom they may interact on a regular basis. Individuals seem more likely to file and to report their taxes when they believe that other individuals are also filing and reporting their taxes; conversely, when individuals believe that others are cheating on their taxes, they may well become cheaters themselves. We use experimental methods to test the role of such information about peer effects on compliance behavior. In one setting, we inform individuals about the frequency that their neighbors submit a tax return. In a second setting, we inform them about the number of their neighbors who are audited, together with the penalties that they pay. In both cases, we examine the impact of information on filing behavior and also on subsequent reporting behavior. We find that providing information on whether one’s neighbors are filing returns and/or reporting income has a statistically significant and economically large impact on individual filing and reporting decisions. However, this “neighbor” information does not always improve compliance, depending on the exact content of the information. Key Words: Tax evasion; Tax compliance; Behavioral economics; Experimental economics
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • James Alm & Kim M. Bloomquist & Michael McKee, 2017. "When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance," Fiscal Studies, Institute for Fiscal Studies, vol. 38, pages 587-613, December.
  • Handle: RePEc:ifs:fistud:v:38:y:2017:i::p:587-613
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
    2. Galbiati, Roberto & Zanella, Giulio, 2012. "The tax evasion social multiplier: Evidence from Italy," Journal of Public Economics, Elsevier, vol. 96(5), pages 485-494.
    3. Alm, James & Cherry, Todd & Jones, Michael & McKee, Michael, 2010. "Taxpayer information assistance services and tax compliance behavior," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 577-586, August.
    4. Brian Erard & Chih-Chin Ho, 1999. "Searching for Ghosts: Who Are the Nonfilers nd How Much Tax Do They Owe?," Carleton Economic Papers 99-11, Carleton University, Department of Economics, revised Jul 2001.
    5. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    6. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April.
    7. Fortin, Bernard & Lacroix, Guy & Villeval, Marie-Claire, 2007. "Tax evasion and social interactions," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2089-2112, December.
    8. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    9. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
    10. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, May.
    11. George A. Akerlof & Rachel E. Kranton, 2000. "Economics and Identity," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 715-753.
    12. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
    13. Traxler, Christian, 2010. "Social norms and conditional cooperative taxpayers," European Journal of Political Economy, Elsevier, vol. 26(1), pages 89-103, March.
    14. Mathieu Lefebvre & Pierre Pestieau & Arno Riedl & Marie-Claire Villeval, 2011. "Tax Evasion, Welfare Fraud, and the « Broken Windows » Effect : An Experiment in Belgium, France and the Netherlands," Working Papers 1116, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    15. Cummings, Ronald G. & Martinez-Vazquez, Jorge & McKee, Michael & Torgler, Benno, 2009. "Tax morale affects tax compliance: Evidence from surveys and an artefactual field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 70(3), pages 447-457, June.
    16. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance With Experimental Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(1), pages 107-114, March.
    17. Agnar Sandmo, 2012. "An evasive topic: theorizing about the hidden economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 5-24, February.
    18. James Alm & Benno Torgler, 2012. "Do Ethics Matter? Tax Compliance and Morality," Working Papers 1207, Tulane University, Department of Economics.
    19. Kim Bloomquist, 2011. "Tax Compliance as an Evolutionary Coordination Game: An Agent-Based Approach," Public Finance Review, , vol. 39(1), pages 25-49, January.
    20. Nigar Hashimzade & Gareth D. Myles & Binh Tran-Nam, 2013. "Applications Of Behavioural Economics To Tax Evasion," Journal of Economic Surveys, Wiley Blackwell, vol. 27(5), pages 941-977, December.
    21. Erard, Brian & Ho, Chih-Chin, 2001. "Searching for ghosts: who are the nonfilers and how much tax do they owe?," Journal of Public Economics, Elsevier, vol. 81(1), pages 25-50, July.
    22. Kirchler, Erich & Hoelzl, Erik & Wahl, Ingrid, 2008. "Enforced versus voluntary tax compliance: The "slippery slope" framework," Journal of Economic Psychology, Elsevier, vol. 29(2), pages 210-225, April.
    23. Cowell, Frank A. & P.F. Gordon, James, 1988. "Unwillingness to pay : Tax evasion and public good provision," Journal of Public Economics, Elsevier, vol. 36(3), pages 305-321, August.
    24. Kirchler,Erich, 2007. "The Economic Psychology of Tax Behaviour," Cambridge Books, Cambridge University Press, number 9780521876742.
    25. Gordon, James P. P., 1989. "Individual morality and reputation costs as deterrents to tax evasion," European Economic Review, Elsevier, vol. 33(4), pages 797-805, April.
    26. Kastlunger, Barbara & Kirchler, Erich & Mittone, Luigi & Pitters, Julia, 2009. "Sequences of audits, tax compliance, and taxpaying strategies," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 405-418, June.
    27. Stephan Muehlbacher & Erich Kirchler & Herbert Schwarzenberger, 2011. "Voluntary versus enforced tax compliance: empirical evidence for the “slippery slope” framework," European Journal of Law and Economics, Springer, vol. 32(1), pages 89-97, August.
    28. Alm, James & Jackson, Betty R. & McKee, Michael, 2009. "Getting the word out: Enforcement information dissemination and compliance behavior," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 392-402, April.
    29. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    30. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, vol. 45(1), pages 107-14, March.
    31. James Alm & Kim M. Bloomquist & Michael McKee, 2015. "On The External Validity Of Laboratory Tax Compliance Experiments," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1170-1186, April.
    32. Orviska, Marta & Hudson, John, 2003. "Tax evasion, civic duty and the law abiding citizen," European Journal of Political Economy, Elsevier, vol. 19(1), pages 83-102, March.
    33. James Alm, 2012. "Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies," Working Papers 1213, Tulane University, Department of Economics.
    34. Alm, James & Bahl, Roy & Murray, Matthew N, 1991. "Tax Base Erosion in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 39(4), pages 849-872, July.
    35. Herbert C. Kelman, 1958. "Compliance, identification, and internalization three processes of attitude change," Journal of Conflict Resolution, Peace Science Society (International), vol. 2(1), pages 51-60, March.
    36. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(4), pages 643-663, December.
    37. Gerlinde Fellner & Rupert Sausgruber & Christian Traxler, 2013. "Testing Enforcement Strategies In The Field: Threat, Moral Appeal And Social Information," Journal of the European Economic Association, European Economic Association, vol. 11(3), pages 634-660, June.
    38. James Alm & Benno Torgler, 2011. "Do Ethics Matter? Tax Compliance and Morality," Journal of Business Ethics, Springer, vol. 101(4), pages 635-651, July.
    39. James Alm, 2012. "Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 54-77, February.
    40. Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 297-312, July.
    41. Kim, Youngse, 2003. "Income distribution and equilibrium multiplicity in a stigma-based model of tax evasion," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1591-1616, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Alm, James & Bruner, David M. & McKee, Michael, 2016. "Honesty or dishonesty of taxpayer communications in an enforcement regime," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 85-96.
    2. International Monetary Fund, 2016. "Albania; Selected Issues," IMF Staff Country Reports 16/143, International Monetary Fund.
    3. Litina, Anastasia & Palivos, Theodore, 2016. "Corruption, tax evasion and social values," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 164-177.
    4. Gloria Alarcón García & José Daniel Buendía Azorín & María del Mar Sánchez Vega, 2016. "El rechazo al fraude fiscal en España: antes y después de la Gran crisis," Hacienda Pública Española, IEF, vol. 218(3), pages 33-56, September.
    5. Hallsworth, Michael & List, John A. & Metcalfe, Robert D. & Vlaev, Ivo, 2017. "The behavioralist as tax collector: Using natural field experiments to enhance tax compliance," Journal of Public Economics, Elsevier, vol. 148(C), pages 14-31.
    6. Kandul, Serhiy & Uhl, Matthias, 2016. "Inspirations or incitements? Ethical mind-sets and the effect of moral examples," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 65(C), pages 146-153.
    7. James Alm & Carolyn J. Bourdeaux, 2014. "Applying Behavioral Economics to the Public Sector," Working Papers 1405, Tulane University, Department of Economics.
    8. Duccio Gamannossi degl'Innocenti & Matthew D. Rablen, 2018. "Tax Evasion on a Social Network," CESifo Working Paper Series 7063, CESifo Group Munich.
    9. López Pérez, Raúl & Ramírez Zamudio, Aldo., 2018. "Social norms and tax compliance: Experiments and theory," Working Papers in Economic Theory 2018/02, Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History).
    10. James Alm, 2017. "Is Economics Useful for Public Policy?," Working Papers 1702, Tulane University, Department of Economics.
    11. James Alm, 2014. "Expanding the theory of tax compliance from individual to group motivations," Chapters,in: A Handbook of Alternative Theories of Public Economics, chapter 12, pages 260-277 Edward Elgar Publishing.
    12. Roukiatou Nikiema & Pam Zahonogo, 2017. "Taxpayer behaviour and institutions in Sub-Saharan Africa," BeFinD Working Papers 0119, University of Namur, Department of Economics.
    13. Anastasia Litina & Theodore Palivos, 2015. "Corruption and Tax Evasion: Reflections on Greek Tragedy," Working Papers 193, Bank of Greece.
    14. James Alm & Carolyn J. Bourdeaux, 2013. "Applying Behavioral Economics to the Public Sector," Hacienda Pública Española, IEF, vol. 206(3), pages 91-134, September.
    15. James Alm, 2017. "Is Economics Useful for Public Policy?," Working Papers 1702, Tulane University, Department of Economics.

    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ifs:fistud:v:38:y:2017:i::p:587-613. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Emma Hyman). General contact details of provider: http://edirc.repec.org/data/ifsssuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.