Does Whistleblowing on Tax Evaders Reduce Ingroup Cooperation?

Philipp Chapkovski,Luca Corazzini,Valeria Maggian

doi:10.2139/ssrn.3970606

Abstract

Whistleblowing is a powerful and rather inexpensive instrument to contrast tax evasion. Despite the deterrent effects on tax evasion, whistleblowing can reduce trust and undermine agentsâ€™ attitude to cooperate with group members. Yet, no study has investigated the potential spillover effects of whistleblowing on ingroup cooperation. This paper reports results of a laboratory experiment in which subjects participate in two consecutive phases in unchanging groups: a tax evasion game, followed by a generalized gift exchange game. Two dimensions are manipulated in our experiment: the inclusion of a whistleblowing stage in which, after observing othersâ€™ declared incomes, subjects can signal other group members to the tax authority, and the provision of information about the content of the second phase before the tax evasion game is played. Our results show that whistleblowing is effective in both curbing tax evasion and improving the precision of tax auditing. Moreover, we detect no statistically significant spillover effects of whistleblowing on ingroup cooperation in the subsequent generalized gift exchange game, with this result being unaffected by the provision of information about the experimental task in the second phase. Finally, the provision of information does not significantly alter subjectsâ€™ (tax and whistleblowing) choices in the tax evasion game: thus, knowledge about perspective ingroup cooperation did not alter attitude towards whistleblowing.

Highlights

Tax evasion and tax fraud represent a major concern all over the world1, subtracting fiscal resources that are needed to finance public goods and questioning the effectiveness and fairness of tax systems.Whistleblowing by citizens has recently gained increased attention as an effective and viable strategy to contrast tax evasion
While there is evidence showing that trust in the government represents an important determinant of the decision to blow the whistle on tax evaders (Antinyan et al, 2020) a research question that remains unexplored is whether whistleblowing can undermine the quality of social interactions within communities
We describe the effect of whistleblowing on tax evasion

Summary

Introduction

Tax evasion and tax fraud represent a major concern all over the world, subtracting fiscal resources that are needed to finance public goods and questioning the effectiveness and fairness of tax systems.Whistleblowing by citizens has recently gained increased attention as an effective and viable strategy to contrast tax evasion. Despite the potential fiscal benefits of whistleblowing, the number of studies analyzing its determinants and socioeconomic consequences is still limited. In this respect, while there is evidence showing that trust in the government represents an important determinant of the decision to blow the whistle on tax evaders (Antinyan et al, 2020) a research question that remains unexplored is whether whistleblowing can undermine the quality of social interactions within communities. As numerous studies have been shown, those who dare to report the norm violation or crime committed by their own group members are under risk of being stigmatized by their communities (Woldoff and Weiss, 2010). Even when anonymity is fully assured, the whistleblower’s actions might be perceived as undermining ingroup trust (Wallmeier, 2019), so that whistleblowing could negatively affect future group cooperation

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Conclusion