The Effects of a Shared Interest and Regret Salience on Tax Evasion

Abstract

B rink and White (2015) examine individual tax compliance and whether (1) a shared interest in the consequences of evasion, and (2) regret salience of a potential adverse audit influence tax compliance decisions. Given the vast amount of potential revenue lost each year due to taxpayer noncompliance, understanding the root causes of tax compliance decisions has important practical implications. Extant research on individual tax compliance has examined both economic factors (Allingham and Sandmo 1972), as well as non-economic factors such as ethical decision-making (Alm and Torgler 2011). However, previous research has not examined the effects of a shared interest in the consequences of a tax compliance decision, nor the influence of a shared interest under differing degrees of regret salience. To investigate the influence of a shared interest and regret salience on tax compliance decisions, Brink and White (2015) conduct an experiment using 147 experienced taxpayers as participants. Participants are assigned to conditions with either the presence (partner in a partnership) or absence (sole proprietor) of a shared interest, and either the presence (regret frame) or absence (control frame) of heightened awareness of regret. Results indicate that tax compliance is more likely when a shared interest is presence, as well as when regret salience is primed; however, there is not a significant interaction between the presence/absence of a shared interest and regret salience. Supplemental analysis indicates that tax evasion is judged to be more unethical when a shared interest is present than when it is absent, and that the emotional costs of tax evasion are higher in the presence of a shared interest. Brink and White (2015) contribute to the tax compliance literature in several important ways. Specifically, given the prevalence of a shared interest in the consequences of tax evasion (such as through partnerships and S corporations), surprisingly little is known about how the presence of a shared interest may influence tax compliance decisions. This study provides an excellent first step in