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Tax Amnesties and the Insurance Effect: An Experimental Study

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  • Koch, Christian
  • Müller, Cornelius

Abstract

Many countries grant exemption from legal prosecution under certain conditions, allowing for voluntary disclosures regarding tax evasion. Empirically, tax amnesties appear most successful when accompanied by an increase in enforcement efforts because they help evaders to adjust to the new circumstances. Time-limited amnesties are often repeated or in some countries even permanent. Anticipated tax amnesties can, however, serve as an insurance against a rise in the detection probability, potentially leading to less and not more tax compliance. We test the relevance of this insurance effect in an experimental tax game and disentangle it from an effect on tax morale, i.e., non-pecuniary motives to comply. We ftnd that the former effect indeed decreases overall tax compliance by about 7-10 percent, showing its relevance for the design of tax policies. A high predictability of amnesties may work to their detriment.

Suggested Citation

  • Koch, Christian & Müller, Cornelius, 2022. "Tax Amnesties and the Insurance Effect: An Experimental Study," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112991, Verein für Socialpolitik / German Economic Association, revised 2022.
    • Handle: RePEc:zbw:vfsc15:112991
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    References listed on IDEAS

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    More about this item

    Keywords

    tax compliance; tax amnesty; lab experiment; social norms;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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