Working Paper: CEPR ID: DP12886
Authors: Luca David Opromolla; Filomena Garcia; Andrea Vezzulli; Rafael Marques
Abstract: The administration of tax policy has shifted its focus from enforcement to complementary instruments aimed at creating a social norm of tax compliance. In this paper we provide an analysis of the effects of the dissemination of information regarding the past degree of tax evasion at the social level on the current individual tax compliance behavior. We build an experiment where, for given levels of audit probabilities, fines and tax rates, subjects have to declare their income after receiving either a communication of the official average tax evasion rate or a private message from a group of randomly matched peers about their tax behavior. We use the experimental data to estimate a dynamic econometric model of tax evasion. The econometric model extends the Allingham–Sandmo–Yitzhaki tax evasion model to include self-consistency and endogenous social interactions among taxpayers. We find four main results. First, tax compliance is very persistent. Second, the higher the official past tax evasion rate the higher the degree of persistence: evaders are more likely to evade again, and compliant individuals are more likely to comply again. Third, when all peers communicate to have evaded (complied) in the past, both evaders and compliant individuals are more likely to evade (comply). Fourth, while both treatments, and especially the unofficial information treatment, are associated, in the context of our experiment, with a significantly larger growth in evasion intensity, the aggregate effect depends on the characteristics of the population. In countries with inherently low levels of tax evasion, official information can have beneficial effects by consolidating the behavior of compliant individuals. However, in countries with inherently high levels of tax evasion, official information can have detrimental effects by intensifying the behavior of evaders. In both cases, the impact of official information is magnified in the presence of strong peer effects.
Keywords: Tax Morale; Information; Tax Evasion; Experiment; Peer Effects
JEL Codes: H26; D63; C24; C92; Z13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Tax compliance behavior in the previous period (H26) | Tax compliance behavior in the current period (H26) |
| Tax evasion behavior in the previous period (H26) | Tax compliance behavior in the current period (H26) |
| One percentage point increase in communicated average evasion intensity (H26) | Probability of evasion for past evaders (H26) |
| One percentage point increase in communicated average evasion intensity (H26) | Probability of evasion for past compliant individuals (H26) |
| Unofficial information indicating widespread evasion (H26) | Likelihood of evasion for past evaders (H26) |
| Unofficial information indicating widespread evasion (H26) | Likelihood of evasion for past compliant individuals (H26) |
| Official and unofficial information treatments (Y50) | Evasion intensity (H26) |
| Individuals who complied prior to an audit (H26) | Likelihood to evade afterward (H26) |
| Individuals with income just above the tax threshold (H24) | Likelihood to evade (H26) |