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Expanding the Theory of Tax Compliance from Individual to Group Motivations

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  • James Alm

    () (Department of Economics, Tulane University)

Abstract

Taxpayers face well-known and well-identified individual motivations in their compliance decisions, motivations that originate with the standard economic model of tax evasion in which financial incentives are shaped by audit, penalty, and tax rates. However, there is growing evidence that these individual incentives, while important, are not always decisive. Individuals do not always behave as the selfish, rational, self-interested individuals portrayed in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation some aspects of social norms, morality, altruism, fairness, or the like, factors that I broadly and no doubt imprecisely lump together as group motivations. I argue that the compliance puzzle can be explained, at least in part, by expanding the standard analysis of individual compliance behavior to incorporate the important ways in which individual decisions are shaped by group motivations. I also provide empirical and experimental evidence to support these arguments, and, I suggest – and predict – some promising lines of future research.

Suggested Citation

  • James Alm, 2013. "Expanding the Theory of Tax Compliance from Individual to Group Motivations," Working Papers 1309, Tulane University, Department of Economics.
  • Handle: RePEc:tul:wpaper:1309
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    File URL: http://econ.tulane.edu/RePEc/pdf/tul1309.pdf
    File Function: First Version, February 2013
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    References listed on IDEAS

    as
    1. James Alm & Erich Kirchler & Stephan Muehlbacher & Katharina Gangl & Eva Hofmann & Christoph Kogler & Maria Pollai, 2012. "Rethinking the Research Paradigms for Analysing Tax Compliance Behaviour," CESifo Forum, Ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 13(2), pages 33-40, July.
    2. 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.
    3. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    4. 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.
    5. Bernasconi, Michele, 1998. "Tax evasion and orders of risk aversion," Journal of Public Economics, Elsevier, vol. 67(1), pages 123-134, January.
    6. Alm, James & Jackson, Betty R. & McKee, Michael, 1993. "Fiscal exchange, collective decision institutions, and tax compliance," Journal of Economic Behavior & Organization, Elsevier, vol. 22(3), pages 285-303, December.
    7. Kirchler,Erich, 2007. "The Economic Psychology of Tax Behaviour," Cambridge Books, Cambridge University Press, number 9780521876742.
    8. 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.
    9. James C. Cox, 2012. "Private Goods, Public Goods, and Common Pools with Homo Reciprocans," Southern Economic Journal, Southern Economic Association, vol. 79(1), pages 1-14, July.
    10. Erard, Brian & Feinstein, Jonathan S, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 70-89.
    11. Andreoni, James, 1989. "Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1447-1458, December.
    12. Benno Torgler & Markus Schaffner & Alison Macintyre, 2007. "Tax Compliance, Tax Morale and Governance Quality," CREMA Working Paper Series 2007-17, Center for Research in Economics, Management and the Arts (CREMA).
    13. Henrik J. Kleven & Martin B. Knudsen & Claus T. Kreiner & Søren Pedersen & Emmanuel Saez, 2010. "Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark," NBER Working Papers 15769, National Bureau of Economic Research, Inc.
    14. Calvet Christian, Roberta & Alm, James, 2014. "Empathy, sympathy, and tax compliance," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 62-82.
    15. Benno Torgler, 2007. "Tax Compliance and Tax Morale," Books, Edward Elgar Publishing, number 4096.
    16. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
    17. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    18. 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.
    19. repec:ifs:fistud:v:38:y:2017:i::p:587-613 is not listed on IDEAS
    20. 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.
    21. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    22. 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.
    23. Brian Erard & Jonathan Feinstein, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Carleton Industrial Organization Research Unit (CIORU) 94-03, Carleton University, Department of Economics.
    24. 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.
    25. 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.
    26. Alm, James & McClelland, Gary H & Schulze, William D, 1999. "Changing the Social Norm of Tax Compliance by Voting," Kyklos, Wiley Blackwell, vol. 52(2), pages 141-171.
    27. Joel Slemrod & Caroline Weber, 2012. "Evidence of the invisible: toward a credibility revolution in the empirical analysis of tax evasion and the informal economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 25-53, February.
    28. Alm, James & McClelland, Gary H. & Schulze, William D., 1992. "Why do people pay taxes?," Journal of Public Economics, Elsevier, vol. 48(1), pages 21-38, June.
    29. Alm, James & Yunus, Mohammad, 2009. "Spatiality and Persistence in U.S. Individual Income Tax Compliance," National Tax Journal, National Tax Association, vol. 62(1), pages 101-124, March.
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    Cited by:

    1. Silvestri, Paolo, 2015. "Anthropology of freedom and tax justice: between exchange and gift. Thoughts for an interdisciplinary research agenda," MPRA Paper 67644, University Library of Munich, Germany.
    2. International Monetary Fund, 2016. "Albania; Selected Issues," IMF Staff Country Reports 16/143, International Monetary Fund.
    3. 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.

    More about this item

    Keywords

    tax evasion; behavioral economics; experimental economics;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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