Cultural tightness, trust, and power in enforcing tax compliance

The so-called Cultural Tightness–Looseness (CTL) concept intends to describe the socio-cultural foundation of societies by the strictness of social norms. In this paper, CTL is used to investigate its relevance to enforcing tax compliance. The CTL concept is formalised by structural payoff matrices for the confrontation between citizens and officials. Social norms and their impacts on the behaviour of the parties in a conflict are used to define several variants of tight and loose societies. The payoff matrices are employed to classify respective forms of societies. For a dynamic analysis, ‘power’ and ‘trust’, as policy measures of behaviour control, are introduced to determine which instrument or combination of instruments emerges as the most relevant and effective option in the respective societal setting. The result is that ‘trust’ emerges in tight societies as the more important instrument of behaviour control, whereas ‘power’ appears as the more crucial tool in loose societies. Therefore, it is concluded that power or the ‘cops and robbers’ approach is usually applied in loose societies to enforce tax compliance. By contrast, ‘trust’ via the provision of information and support for paying taxes can be more often used in tight societies.