Learning from Academic Learning from Academic Learning from Academic - PowerPoint PPT Presentation

Learning from Academic Learning from Academic Learning from Academic Learning from Academic Research on Tax Compliance? Research on Tax Compliance? p James Alm jalm@tulane edu jalm@tulane.edu

I. Insights from theoretical research II II. Insights from field data and controlled field Insights from field data and controlled field experiments III. Insights from laboratory experiments h f l b IV. Summary: What does all of this evidence IV. Summary: What does all of this evidence really show? V V. Devising policies to control evasion D i i li i t t l i

I. Insights from theoretical research I. Insights from theoretical research • Enforcement matters – but many other factors matter in the tax compliance decision beyond enforcement. • Individuals do not always behave as assumed in the standard economic approach: Behavioral economics and its applications to individual behavior. • Individuals are social creatures: Behavioral economics and its applications to group behavior. economics and its applications to group behavior.

II. Insights from field data and controlled II. Insights from field data and controlled field experiments field experiments • Deterrence works. • Even so, the responses to higher audit rates are often , p g small and differ across individuals – and not everyone responds. p • Withholding matters, and matters a lot. • Other fiscal incentives matter (e g tax rates benefits) • Other fiscal incentives matter (e.g., tax rates, benefits). • Group factors matter in the individual decision.

III. Insights from laboratory experiments III. Insights from laboratory experiments • Deterrence works. D t k • Even so, the responses to higher audit and penalty rates are often small and differ across individuals – and not are often small and differ across individuals and not everyone responds • Individual and group payoffs/rewards matter. • Uncertainty matters, although its effects are not always clear cut. • In the face of uncertainty services matter • In the face of uncertainty, services matter. • Cognitive considerations matter: Many individuals overweight the probability of an audit. overweight the probability of an audit. • Process matters. • Audit selection matters. • Audit information matters. • Individual motivations matter. • Tax amnesties matter.

IV. Summary: What does all this evidence IV. Summary: What does all this evidence reall sho ? reall sho ? really show? really show? • Individuals are influenced by narrowly defined, and individually based, financial considerations and by d d ll b d f l d d b the ways in which they process this information. • Individuals are influenced by social considerations (e.g., a “social norm”). • Individuals cannot be represented by a single representative agent, but must be considered a p g , collection of different segments.

V Devising policies to V Devising policies to control evasion V. Devising policies to V. Devising policies to control evasion control evasion control evasion • The “Enforcement” paradigm: Increase threats The Enforcement paradigm: Increase threats Taxpayers are viewed and treated as potential criminals, and the emphasis is on repression of illegal behavior through frequent audits and stiff penalties. stiff penalties • The “Service” paradigm: Improve service There is also a role of tax administration as a facilitator and as a provider p of services to taxpayer ‐ citizens. • The “Trust” paradigm: Change culture Individuals are more likely to respond either to enforcement or services if f f they believe that the government generally and the tax administration specifically are honest; that is, “trust” in the authorities can have a positive impact on compliance.