Abstract
To address a debate in the literature concerning the impact of culture on tax compliance, we examine a case where extreme disparities in the two variables coincide, and test for a causal relationship. Our research design isolates the role of culture by focusing on regional differences within a single country: Italy. Southern Italy has long been a focus of research interest, not only for its extremely high rates of tax evasion, but for a host of other social and political ills, all usually attributed to regional culture. Our laboratory tax compliance experiment, conducted in provinces of the northern and southern regions, found that taxpayers in the north and south generally behaved alike in terms of average compliance rates. Yet, individuals’ sensitivity to changes in tax structures matter, and vary within country. We found lower responsiveness to greater redistribution among taxpayers in the south than those in the north. This suggests the limited explanatory power of culture in tax compliance in favor of institutional explanations.
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