Abstract
In this paper, lab experiments on tax compliance were theoretically investigated with dynamic and stochastic methods. It is well known from experimental games that learning allows a better understanding of participants’ behavior. However, it has not been explicitly applied so far in the theoretical analysis of tax compliance experiments. In this paper, it was shown that two decision-making processes may be distinguished: a discrete process in which all options are regarded and an all-or-nothing process in which either the respective tax is paid fully or not at all. The corresponding variant of the learning model was either a stochastic or a deterministic one, with the stochastic version as the more general model. In the additional empirical part of the paper, it was shown that tax payments decline in trend over the rounds of the considered experiment. This negative trend was interpreted as a learning effect, in accordance with the stochastic version of the theoretical model. However, the alternative interpretation that the observed behavior was driven by a tiring effect cannot be completely excluded.
Highlights
In this paper, a theoretical learning model for tax compliance lab experiments was supposed.it was demonstrated with data from a tax lab experiment that learning seems to occur in such experiments.The most elementary structure for tax compliance lab experiments looks as follows
Econometric tests are required to find out whether there is a round-trend in tax payments, as implied payment), this may be interpreted in accordance with the stochastic version of the model in Section by the learning model
A theory of learning in games was applied to lab experiments on tax compliance
Summary
A theoretical learning model for tax compliance lab experiments was supposed. The authors found empirical evidence that this effect was mainly driven by incorrect perceptions of audits since they believed that the probability of another audit directly after an audit decreased Another dynamic aspect of tax compliance, in combination with audits and penalties, was analyzed by Kirchler et al [29], as well as formally by Prinz et al [30]. Learning effects are involved in the tax compliance literature, a dynamical and formalized theoretical approach seems to be lacking To provide such a theoretical model, two versions of a learning model of (enforced) tax compliance behavior are presented in this paper: a deterministic and a stochastic one.
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