Working Paper: CEPR ID: DP7215
Authors: Kai A. Konrad; Salmai Qari
Abstract: We study the effects of patriotism on tax compliance. If individuals feel a (random) patriotic warm glow from honest tax compliance, this has implications for optimal auditing and tax compliance. A higher expected warm glow reduces the government's optimal audit probability and yields higher tax compliance. Also, individuals with higher warm glow are less likely to evade taxes. This prediction is confirmed empirically by a multivariate analysis on the individual level while controlling for several other potentially confounding factors. The findings survive a variety of robustness checks, including an instrumental variables estimation to tackle the possible endogeneity of patriotism. On the aggregate level, we provide evidence for a negative correlation between average patriotic warm glow and the size of the shadow economy across several countries.
Keywords: patriotism; tax evasion; warm glow
JEL Codes: H26; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| average patriotic warm glow (F52) | decrease in size of shadow economy (E26) |
| higher expected patriotic warm glow (F52) | decrease in optimal audit probability (M42) |
| higher expected patriotic warm glow (F52) | increase in tax compliance (H26) |
| decrease in optimal audit probability (M42) | increase in tax compliance (H26) |
| higher expected patriotic warm glow (F52) | decrease in tax evasion (H26) |