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Combining Psychology and Economics in the Analysis of Compliance: From Enforcement to Cooperation

  • Erich Kirchler

    ()

    (Department of Applied Psychology: Work, Education and Economy, University of Vienna)

  • Stephan Muehlbacher

    ()

    (Department of Applied Psychology: Work, Education and Economy, University of Vienna)

  • Katharina Gangl

    ()

    (Department of Applied Psychology: Work, Education and Economy, University of Vienna)

  • Eva Hofmann

    ()

    (Department of Applied Psychology: Work, Education and Economy, University of Vienna)

  • Christoph Kogler

    ()

    (Department of Applied Psychology: Work, Education and Economy, University of Vienna)

  • Maria Pollai

    ()

    (Department of Applied Psychology: Work, Education and Economy, University of Vienna)

  • James Alm

    ()

    (Department of Economics, Tulane University)

In tax compliance research, there has been a significant shift in research emphasis from the analysis of enforcement to the incorporation of trust-building measures that encourage cooperation. In this paper, we trace this shift. We first describe the four major "actors" in the tax compliance game and their complex interactions: taxpayers, elected government officials, appointed tax authorities (or the tax administration), and tax accountants. Second, we examine various perspectives on what determines the compliance decisions of individuals. We start with "economic" factors that are based on tax compliance as an individual decision under risk (e.g., audits and fines). We then move to factors based more on "psychology", like social norms, fairness, and interactions both between taxpayers and between taxpayers and the government. Indeed, over the past few decades the view of taxpayers has shifted from one in which an authoritarian government and its tax authority force citizens to pay their taxes under the threat of punishment, to a view in which both elected and appointed authorities provide the necessary services to enable compliance, and even more recently to a view of authorities and citizens cooperating with one another. Third, we present the "slippery slope" framework as a way of integrating economic and psychological aspects into a unified framework. We conclude with recommendations based on this framework that can improve compliance.

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File URL: http://econ.tulane.edu/RePEc/pdf/tul1212.pdf
File Function: First Version, 2012
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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1212.

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Length: 35 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:tul:wpaper:1212
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  1. Erich Kirchler & Boris Maciejovsky & Martin Weber, 2010. "Framing Effects, Selective Information and Market Behavior: An Experimental Analysis," Chapters, in: Handbook of Behavioral Finance, chapter 1 Edward Elgar.
  2. 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.
  3. James Alm & Benno Torgler, 2012. "Do Ethics Matter? Tax Compliance and Morality," Working Papers 1207, Tulane University, Department of Economics.
  4. 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.
  5. Aldo Rustichini & Uri Gneezy, 2000. "A fine is a price," Natural Field Experiments 00258, The Field Experiments Website.
  6. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  7. 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.
  8. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  9. Dekker, Henri C., 2004. "Control of inter-organizational relationships: evidence on appropriation concerns and coordination requirements," Accounting, Organizations and Society, Elsevier, vol. 29(1), pages 27-49, January.
  10. James Alm, 2012. "Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies," Working Papers 1213, Tulane University, Department of Economics.
  11. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
  12. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-53, July.
  13. Francesco Guala & Luigi Mittone, 2005. "Experiments in economics: External validity and the robustness of phenomena," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(4), pages 495-515.
  14. Alm, James & Torgler, Benno, 2006. "Culture differences and tax morale in the United States and in Europe," Journal of Economic Psychology, Elsevier, vol. 27(2), pages 224-246, April.
  15. Kirchler,Erich, 2007. "The Economic Psychology of Tax Behaviour," Cambridge Books, Cambridge University Press, number 9780521876742.
  16. Erich Kirchler & Boris Maciejovsky & Herbert Schwarzenberger, 2003. "Specious Confidence after Tax Audits: A Contribition to the Dynamics of Compliance," Papers on Strategic Interaction 2003-14, Max Planck Institute of Economics, Strategic Interaction Group.
  17. Alm, James & Sanchez, Isabel & de Juan, Ana, 1995. "Economic and Noneconomic Factors in Tax Compliance," Kyklos, Wiley Blackwell, vol. 48(1), pages 3-18.
  18. Gerald J. Pruckner & Rupert Sausgruber, 2008. "Honesty on the Streets - A Natural Field Experiment on Newspaper Purchasing," Working Papers 2009-24, Faculty of Economics and Statistics, University of Innsbruck.
  19. PerOla Öberg & Torsten Svensson, 2010. "Does Power Drive Out Trust? Relations between Labour Market Actors in Sweden," Political Studies, Political Studies Association, vol. 58, pages 143-166, 02.
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