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Advisor(s)
Abstract(s)
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 offcial 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.
Description
Keywords
Tax Morale Information Tax Evasion Experiment Peer Effects
Pedagogical Context
Citation
Garcia, Filomena ... [et al.] . (2018). "The effects of official and unofficial information on tax compliance" . Banco de Portugal. Working Papers nº 9 | 2018.