Taxation, Social Norms and Compliance

The goal of the project “Taxation, Social Norms, and Compliance: Lessons for Institution Design” is to foster research on individual and social determinants of tax compliance. In particular, the project aims to investigate the role of institutions and of social and cultural norms for tax compliance as well as its behavioral foundations. With regard to formal institutions, the project considers the design of the tax system as well the role of tax administration and of tax accounting.

Further, it also addresses social and cultural norms, which is crucial given that tax compliance depends on norms like fairness as well as on the perceptions of other taxpayers’ adherence to these norms.
Finally, the project also includes a specific behavioral component that explores the preferences and the decision process of the individual taxpayer.

more about the project

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Globalization, economic and financial liberalization have opened up ample opportunities for taxpayers to engage in tax planning, tax avoidance and tax evasion. Among the developed countries this has triggered tax reforms featuring reductions in the taxation of savings and investment on the one hand, and increases of consumption taxes on the other. Furthermore, the adverse budgetary effects of the economic and financial crises, and future deficits associated with demographic change, create pressure on governments in the industrialized world to limit spending and to reduce welfare programs. These developments tend to be in conflict with basic principles regarding an equitable tax system and challenge commonly accepted views on the role of the state. They have potentially serious consequences for the perception of the tax system by taxpayers, their cooperation and compliance.

However, most research on taxation has neglected the perceptions of the tax system and the implications for compliance. The mainstream literature discusses taxation by means of decision models where the taxable base is assumed to be fully transparent and, thus, little scope is left for tax compliance. The willingness and ability of taxpayers to cooperate with tax authorities, the role of social norms, fairness and justice, the role of government objectives and performance as well as compliance cost are usually ignored. Also taxpayer motives and the neuro-physiological aspects of taxation are largely neglected.

Against this background, the goal of the project is to foster research on individual and social determinants of tax compliance. In particular, the project aims to investigate the role of institutions and of social and cultural norms for tax compliance as well as its behavioral foundations (see Figure 1).

With regard to formal institutions, the project considers the design of the tax system as well the role of tax administration and of tax accounting. Additionally, it also addresses social and cultural norms, which is crucial given that tax compliance depends on norms like fairness as well as on the perceptions of other taxpayers’ adherence to these norms. Finally, the project also includes a specific behavioral component that explores the preferences and the decision process of the individual taxpayer.

Key research questions of the project include:

  • What determines the willingness of taxpayers to comply with individual taxes and the tax system as a whole?
  • To what extent is tax compliance driven by social norms and how important is the collective adherence to these norms?
  • What are the costs (and benefits) of tax enforcement including changes in the taxpayers’ behavior?
  • What is the role of tax compliance in the trade-off between designing an equitable but complex tax system that attempts to take account of individual taxpayers’ characteristics and designing a simple, easy to administer, but perhaps unfair tax system?
  • What lessons for institution design can be learned from the answers to these questions?

To address those questions and to ensure that research is based on solid institutional, theoretical and empirical foundations, the project combines different disciplines including public finance, tax law, and tax accounting, and also experimental and behavioral economics, sociology and neuroscience.

Cooperation

We cooperate with numerous researchers and institutions worldwide.

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