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Expanding the Theory of Tax Compliance from Individual to Group Motivations

  • James Alm


    (Department of Economics, Tulane University)

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.

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Paper provided by Tulane University, Department of Economics in its series Working Papers with number 1309.

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Length: 24 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:tul:wpaper:1309
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  1. James Alm, 2012. "Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies," Working Papers 1213, Tulane University, Department of Economics.
  2. Bernasconi, Michele, 1998. "Tax evasion and orders of risk aversion," Journal of Public Economics, Elsevier, vol. 67(1), pages 123-134, January.
  3. 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 1447-58, December.
  4. Agnar Sandmo, 2012. "An evasive topic: theorizing about the hidden economy," International Tax and Public Finance, Springer, vol. 19(1), pages 5-24, February.
  5. repec:tpr:qjecon:v:114:y:1999:i:3:p:817-868 is not listed on IDEAS
  6. 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, vol. 19(1), pages 25-53, February.
  7. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  8. 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.
  9. James Alm & Benno Torgler, 2004. "Culture Differences and Tax Morale in the United States and in Europe," CREMA Working Paper Series 2004-14, Center for Research in Economics, Management and the Arts (CREMA).
  10. Calvet Christian, Roberta & Alm, James, 2014. "Empathy, sympathy, and tax compliance," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 62-82.
  11. 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.
  12. 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.
  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. 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.
  15. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  16. 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.
  17. 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.
  18. James C. Cox, 2012. "Private Goods, Public Goods and Common Pools with Homo Reciprocans," Experimental Economics Center Working Paper Series 2012-06, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  19. 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.
  20. Benno Torgler & James Alm & Jorge Martinez-Vazquez, 2005. "Russian Attitudes Toward Paying Taxes – Before, During, and After the Transition," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0518, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  21. 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 141-71.
  22. 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.
  23. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
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