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The effect of tax privacy on tax compliance: An experimental investigation

Author

Listed:
  • Blaufus, Kay
  • Bob, Jonathan
  • Otto, Philipp E.
Abstract
In this paper, a tax game with audit costs as a public bad is designed to investigate the impact of public disclosure on tax evasion experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect to observe two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces his own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. We find evidence of increasing tax evasion with reduced tax privacy if information is disclosed anonymously. Our results also indicate that the shame effect is not strong enough to override the contagion effect when both effects are present. Our results are of particular importance for fiscal policy because public disclosure may lead to more evasion instead of less, due to motivational crowding-out of tax morale.

Suggested Citation

  • Blaufus, Kay & Bob, Jonathan & Otto, Philipp E., 2014. "The effect of tax privacy on tax compliance: An experimental investigation," arqus Discussion Papers in Quantitative Tax Research 164, arqus - Arbeitskreis Quantitative Steuerlehre.
    • Handle: RePEc:zbw:arqudp:164
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    File URL: https://www.econstor.eu/bitstream/10419/97269/1/786609885.pdf
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    References listed on IDEAS

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    1. Mathieu Lefebvre & Pierre Pestieau & Arno Riedl & Marie Villeval, 2015. "Tax evasion and social information: an experiment in Belgium, France, and the Netherlands," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(3), pages 401-425, June.
    2. Frey, Bruno S. & Torgler, Benno, 2007. "Tax morale and conditional cooperation," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 136-159, March.
    3. Erlend E. Bø & Joel Slemrod & Thor O. Thoresen, 2015. "Taxes on the Internet: Deterrence Effects of Public Disclosure," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 36-62, February.
    4. Huck, Steffen & Kübler, Dorothea & Weibull, Jörgen, 2012. "Social norms and economic incentives in firms," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 173-185.
    5. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    7. Kastlunger, Barbara & Dressler, Stefan G. & Kirchler, Erich & Mittone, Luigi & Voracek, Martin, 2010. "Sex differences in tax compliance: Differentiating between demographic sex, gender-role orientation, and prenatal masculinization (2D:4D)," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 542-552, August.
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    Cited by:

    1. Christoph Engel, 2016. "Experimental Criminal Law. A Survey of Contributions from Law, Economics and Criminology," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2016_07, Max Planck Institute for Research on Collective Goods.

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    More about this item

    Keywords

    Tax privacy; Tax evasion; Public bad; Social norm; Conditional cooperation; Economic experiment;
    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
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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