Can strategic uncertainty help deter tax evasion? An experiment on auditing rules
► We examine a bounded rule inducing strategy uncertainty among taxpayers. ► We experimentally compare the bounded rule with a flat-rate audit rule. ► Under the bounded rule, participants are informed of the maximum audit number. ► The bounded rule deters cheaters more effectively when strategic unc...
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Published in | Journal of economic psychology Vol. 40; pp. 161 - 174 |
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Main Authors | , |
Format | Journal Article |
Language | English |
Published |
Amsterdam
Elsevier B.V
01.02.2014
Elsevier Sequoia S.A |
Subjects | |
Online Access | Get full text |
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Summary: | ► We examine a bounded rule inducing strategy uncertainty among taxpayers. ► We experimentally compare the bounded rule with a flat-rate audit rule. ► Under the bounded rule, participants are informed of the maximum audit number. ► The bounded rule deters cheaters more effectively when strategic uncertainty is high. ► The evasion dynamics of the bounded rule differs from that of the flat-rate rule.
This paper adds to the economic-psychological research on tax compliance by experimentally testing a simple auditing rule that induces strategic uncertainty among taxpayers. Under this rule, termed the bounded rule, taxpayers are informed of the maximum number of audits by a tax authority, so that the audit probability depends on the joint decisions among the taxpayers. We compare the bounded rule to the widely studied flat-rate rule, where taxpayers are informed that they will be audited with a constant probability. The experimental evidence shows that, as theoretically predicted, the bounded rule induces the same level of compliance as the flat-rate rule when strategic uncertainty is low, and a higher level of compliance when strategic uncertainty is high. The bounded rule also induces distinctive tax evasion dynamics compared to the flat-rate rule. The results suggest that increasing the level of strategic uncertainty among taxpayers could be an effective device to deter tax evasion. |
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Bibliography: | ObjectType-Article-2 SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 23 |
ISSN: | 0167-4870 1872-7719 |
DOI: | 10.1016/j.joep.2012.11.005 |