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Extending the lessons of laboratory experiments on tax compliance to managerial and decision economics

Author

Listed:
  • James Alm

    (University of Colorado at Boulder, Department of Economics, Campus Box 256, Boulder, CO 80309-0256, USA)

  • Michael McKee

    (University of New Mexico, Department of Economics, Albuquerque, NM 87131, USA)

Abstract

In this paper we examine what experiments on tax compliance have revealed about compliance behavior, and we discuss what these experiments can reveal about managerial and decision economics. We draw two general conclusions from this discussion. First, compliance is a complicated decision, one that depends upon the financial incentives facing the decision-maker, including detection and punishment, but one that also depends upon many other factors that have not been considered by the standard economics-of-crime paradigm. Second, and as a consequence, broader approaches to the compliance decision are needed, ones that involve enforcement but that also encompass more complete models of behavior. Put differently, any company strategy based only on detection and punishment may well be a reasonable starting point for compliance but not a good ending point. Instead, what is needed is a multi-faceted approach that emphasizes enforcement, but that also emphasizes the broad range of motivations that explain why people obey rules and regulations. © 1998 John Wiley & Sons, Ltd.

Suggested Citation

  • James Alm & Michael McKee, 1998. "Extending the lessons of laboratory experiments on tax compliance to managerial and decision economics," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 259-275.
  • Handle: RePEc:wly:mgtdec:v:19:y:1998:i:4-5:p:259-275
    DOI: 10.1002/(SICI)1099-1468(199806/08)19:4/5<259::AID-MDE890>3.0.CO;2-2
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    Cited by:

    1. repec:kap:itaxpf:v:25:y:2018:i:1:d:10.1007_s10797-017-9448-1 is not listed on IDEAS
    2. Mattos, Enlinson & Rocha, Fabiana & Toporcov, Patricia, 2013. "Programas de incentivos fiscais são eficazes? Evidência a partir da avaliação do impacto do programa nota fiscal paulista sobre a arrecadação de ICMS," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 67(1), April.
    3. Cadsby C. Bram & Song Fei & Tapon Francis, 2010. "Are You Paying Your Employees to Cheat? An Experimental Investigation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-32, April.
    4. Timothy N. Cason & Lata Gangadharan, 2006. "An Experimental Study of Compliance and Leverage in Auditing and Regulatory Enforcement," Economic Inquiry, Western Economic Association International, vol. 44(2), pages 352-366, April.
    5. Murphy, James J. & Stranlund, John K., 2007. "A laboratory investigation of compliance behavior under tradable emissions rights: Implications for targeted enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 53(2), pages 196-212, March.
    6. Stranlund, John K. & Murphy, James J. & Spraggon, John M., 2011. "An experimental analysis of compliance in dynamic emissions markets," Journal of Environmental Economics and Management, Elsevier, vol. 62(3), pages 414-429.
    7. Calvet Christian, Roberta & Alm, James, 2014. "Empathy, sympathy, and tax compliance," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 62-82.
    8. Cadsby, C. Bram & Du, Ninghua & Song, Fei, 2016. "In-group favoritism and moral decision-making," Journal of Economic Behavior & Organization, Elsevier, vol. 128(C), pages 59-71.
    9. Donna Bobek & Amy Hageman & Charles Kelliher, 2013. "Analyzing the Role of Social Norms in Tax Compliance Behavior," Journal of Business Ethics, Springer, vol. 115(3), pages 451-468, July.
    10. repec:fgv:epgrbe:v:67:n:1:a:5 is not listed on IDEAS
    11. Urs Fischbacher & Franziska Föllmi-Heusi, 2013. "Lies In Disguise—An Experimental Study On Cheating," Journal of the European Economic Association, European Economic Association, vol. 11(3), pages 525-547, June.
    12. Tan, Fangfang & Yim, Andrew, 2010. "Deterrence Effects of Auditing Rules: An Experimental Study," MPRA Paper 27859, University Library of Munich, Germany.
    13. John K. Stranlund & James J. Murphy & John M. Spraggon, 2013. "Imperfect enforcement of emissions trading and industry welfare: a laboratory investigation," Chapters,in: Handbook on Experimental Economics and the Environment, chapter 9, pages 265-288 Edward Elgar Publishing.
    14. Lindeboom, Maarten & van der Klaauw, Bas & Vriend, Sandra, 2016. "Audit rates and compliance: A field experiment in care provision," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 160-173.
    15. Lindeboom, Maarten & van der Klaauw, Bas & Vriend, Sandra, 2014. "Audit rates and compliance: A field experiment in long-term care," CEPR Discussion Papers 9924, C.E.P.R. Discussion Papers.
    16. Tan, Fangfang & Yim, Andrew, 2014. "Can strategic uncertainty help deter tax evasion? An experiment on auditing rules," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 161-174.
    17. Choo, C.Y. Lawrence & Fonseca, Miguel A. & Myles, Gareth D., 2016. "Do students behave like real taxpayers in the lab? Evidence from a real effort tax compliance experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 102-114.
    18. Murphy, James J. & Stranlund, John K., 2006. "Direct and market effects of enforcing emissions trading programs: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 217-233, October.
    19. repec:spr:grdene:v:18:y:2009:i:1:d:10.1007_s10726-008-9123-0 is not listed on IDEAS
    20. Hsu, Li–Chen, 2008. "Experimental Evidence on Tax Compliance and Voluntary Public Good Provision," National Tax Journal, National Tax Association, vol. 61(2), pages 205-223, June.
    21. James, Simon & Edwards, Alison, 2010. "An annotated bibliography of tax compliance and tax compliance costs," MPRA Paper 26106, University Library of Munich, Germany.
    22. Evans, Mary & Gilpatric, Scott & McKee, Michael & Vossler, Christian A., 2006. "Managerial incentives for compliance with environmental information disclosure programs," MPRA Paper 60386, University Library of Munich, Germany.

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