Puzzle Of Tax Compliance Research Articles

Gender and the tax compliance puzzle: does gender influence taxpayers’ behaviour towards tax compliance? Evidence from Rwanda

Gender and the tax compliance puzzle: does gender influence taxpayers’ behaviour towards tax compliance? Evidence from Rwanda

Religiosity and Tax Compliance: Evidence from U.S. Counties

ABSTRACT The intention of this paper is to analyse religiosity as a factor that potentially affects tax compliance. Studies in the 1990s have shown that the puzzle of tax compliance is ‘why so many individuals pay their taxes’ and not ‘why people evade taxes.’ It has been noted that compliance cannot be entirely explained by the level of enforcement. Countries set the levels of audit and penalty so low that most individuals would evade taxes if they were rational, because it is unlikely that cheaters will be caught and penalized. Nevertheless, a high degree of compliance is observed. Therefore, studies that analyse a variety of factors other than detection and punishment are need. Religiosity can play an important role in determining one’s tax compliance decision. We use religious adherence data from the American Religious Data Archive and measure tax compliance as a discrepancy in reported income between Internal Revenue Service and Census data to analyse independent effects of church adherence rates on tax compliance in the United States at the county level. To our knowledge, this paper is the first study that analyzes the effect of religiosity on actual tax compliance behaviour.

There is no Spoon: Reconsidering the Tax Compliance Puzzle

For over 40 years theorists have sought the effects of tax audits on voluntary compliance rates by studying individual taxpayer motivations. Yet no single theory has produced a taxpayer incentive model that both comports with experience and explains the effects of audits on compliance. This quandary is often termed the “tax compliance puzzle.” Consequently, some theorists have called for more capacious models that make room for the panoply of individual compliance motivations. This Article proposes that a more complex model is unnecessary. To the contrary, complex compliance and enforcement data can result from extremely simple behavioral rules of individual taxpayers and government examiners interacting over time.This Article describes an agent-based computational model that uses a single, simple rule of action for each taxpayer and examiner. The model produces three interesting effects supporting the conclusion that there may be no tax compliance puzzle to solve. First, the results comport with known U.S. compliance and audit rates. Second, the results suggest that while audit probability influences individual compliance decisions, it has negligible effects on system-level compliance patterns. Third, the results support the theory that the perceived strength of the tax authority correlates directly—but nonlinearly—with voluntary compliance rates. The model is not complete enough to determine conclusively that this last effect is due to perceived strength of the tax authority alone and might be due instead to factors such as social norms and other behaviorist theories.

Tax compliance in a developing country

PurposeThe purpose of this paper is to establish the relationship between perceived grounds for tax non-compliance or compliance behaviors and perceived tax compliance factors.Design/methodology/approachThe study employed a correlational and cross-sectional survey design seeking to understand tax compliance by taxpayers’ perceptions in Uganda. Data from 205 respondents to the questionnaire were analyzed using Statistical Package for Social Scientists and structural equation modeling with analysis of moment structures.FindingsGovernmental effectiveness, transparent tax system (TTS) and voice and accountability (VA) are perceived grounds for tax compliance or non-tax compliance and, as indicators of tax administration significantly influence variances in tax compliance. Tax compliance in Uganda is indicated by perceived worth and distribution of public expenditure (WDPE), level of taxation, inequalities in the tax system and tax evasion.Research limitations/implicationsNo distinction is made between actual and potential taxpayers. Still, the results can contribute to our understanding of tax compliance puzzle from the behavioral angle. Factors such as perceived WDPE indicate a taxpayer’s compliance decision and factors such as governmental effectiveness explain that decision. Additional government policy requirements beyond greater enforcement actions by the tax authorities should be cultivated.Originality/valueResults contribute to extending the basic tax effort model by establishing the extent to which VA, TTS and governmental effectiveness (GEF) matter in a developing country context. The study presents tax compliance as a taxpayer’s decision that is informed by perceptions and shows that factors increasing the taxpayers’ perceptions about VA and GEF relate to the importance that their perceptions have in their tax compliance decisions.

Tax compliance of small and medium enterprises: a developing country perspective

PurposeThe purpose of this paper is to establish the relationship between tax fairness, isomorphic forces, strategic responses and tax compliance in Ugandan small and medium enterprises (SMEs).Design/methodology/approachThis is a correlational and cross-sectional study using two respondent types, the demand (represented by the tax collecting body respondents) and supply (represented by SME respondents) sides of tax compliance, to examine perceived tax compliance in Uganda’s SMEs.FindingsTax fairness, isomorphic forces and strategic responses have a predictive force on tax compliance. Significant mediation effects of tax fairness and also strategic responses are found. The two respondent types perceive the study variables differently – providing an understanding of why the tax compliance puzzle has remained a burgeoning concern. For example, the tax-collecting body respondents perceived more tax fairness than SME respondents, suggesting that perceived tax fairness depends on whose “lenses” you look through.Research limitations/implicationsRather than focussing only on the importance of the rational analytical deliberation of tax fairness by taxpayers in influencing their tax compliance, the current paper shows that in addition, isomorphic forces and strategic responses establish the basis for understanding taxpayers’ compliance.Originality/valueThe methodology that enlists two respondent types, i.e. the supply side of tax compliance and the demand side of tax compliance, probably offers a unique way of deriving better results than previous studies.

Religiosity and Tax Compliance

The intention of this paper is to analyze religiosity as a factor that potentially affects tax compliance. Studies in the 90s have shown that the puzzle of tax compliance is "why so many individuals pay their taxes" and not "why people evade taxes". It has been noted that compliance cannot be explained entirely by the level of enforcement (Graetz and Wilde, 1985; Efflers, 1991). Countries set the levels of audit and penalty so low that most individuals would evade taxes, if they were rational, because it is unlikely that cheaters will be caught and penalized. Nevertheless, a high degree of compliance is observed. Therefore, studies that analyze a variety of factors other than detection and punishment are need. Religiosity can play an important role in determining one's tax compliance decision. I use religious adherence data from the American Religious Data Archive and reported income data from IRS to analyze independent effects of church adherence rates on tax compliance in the United States at the county-level. Tax compliance at the county-level is measured as discrepancy in reported income between IRS data and census data. Existing studies focus on effect of religiosity on tax fraud acceptability (tax morale), not the actual tax fraud or tax compliance behavior. To writer's knowledge, this study is the first study that analyzes the effect of religiosity on actual tax compliance behavior.

Tax compliance and psychic costs: Behavioral experimental evidence using a physiological marker

Although paying taxes is a key element of a well-functioning society, there is still limited understanding as to why people actually pay their taxes. Models emphasizing that taxpayers make strategic, financially motivated compliance decisions seemingly assume an overly restrictive view of human nature. Law abidance may be more accurately explained by social norms, a concept that has gained growing importance as research attempts to understand the tax compliance puzzle. This study analyzes the influence of psychic stress generated by the possibility of breaking social norms in the tax compliance context. We measure psychic stress using heart rate variability (HRV), which captures the psychobiological or neural equivalents of psychic stress that may arise from the contemplation of real or imagined actions, producing immediate physiologic discomfort. The results of our laboratory experiments provide empirical evidence of a positive correlation between psychic stress and tax compliance, thus underscoring the importance of moral sentiments for tax compliance. We also identify three distinct types of individuals who differ in their levels of psychic stress, tax morale, and tax compliance.

Interacting Role of Perceived Service Orientation on Work Family Conflict, Fuel Subsidy Removal and Tax Compliance Behaviour: Evidence from Nigerian SMEs

The paper examined the interacting role of perceived service orientation on the relationship between work family conflict, fuel subsidy removal and tax compliance behaviour in Nigeria. The aim of this paper is to establish whether the interacting role of perceived service orientation will further help in explaining the puzzle of tax compliance in relation to SMEs taxpayers. A total of 281 questionnaires from SMEs in Kaduna and Kano states, North West Nigeria were utilised in this study. Partial Least Squares Structural Equation Modeling (PLS-SEM) was used to test the study hypotheses. As predicted, the findings supported the interacting effect of perceived service orientation on the relationship between work family conflict and tax compliance behaviour, while no interacting effect was found between fuel subsidy removal and tax compliance behaviour. The results have practical implications for relevant tax authorities in creating a new paradigm shift that will ensure effective service orientation in the form of tax education and other form of tax services that could go a long way in minimising the tendency of low level of tax compliance.

There Is No Spoon: Reconsidering the Tax Compliance Puzzle

For over 40 years theorists have sought the effects of tax audits on voluntary compliance rates by studying individual taxpayer motivations. Yet no single theory has produced a taxpayer incentive model that both comports with experience and explains the effects of audits on compliance. This quandary is often termed the “tax compliance puzzle.” Consequently, some theorists have called for more capacious models that make room for the panoply of individual compliance motivations. This paper proposes that a more complex model is unnecessary. To the contrary, complex compliance and enforcement data can result from extremely simple behavioral rules of individual taxpayers and government examiners interacting over time. This paper describes an agent-based computational model that uses a single, simple rule of action for each taxpayer and examiner. The model produces three interesting effects supporting the conclusion that there may be no tax compliance puzzle to solve. First, the results comport with known U.S. compliance and audit rates. Second, the results suggest that while audit probability influences individual compliance decisions, it has negligible effects on system-level compliance patterns. Third, the results support the theory that the perceived strength of the tax authority correlates directly — but nonlinearly — with voluntary compliance rates. The model is not complete enough to determine conclusively that this last effect is due to perceived strength of the tax authority alone and might be due instead to factors such as social norms and other behaviorist theories.

Do Ethics Matter? Tax Compliance and Morality

In this article we argue that puzzle of tax compliance can be explained, at least in part, by recognizing the typically neglected role of ethics in individual behavior; that is, individuals do not always behave as the selfish, rational, self-interested individuals portrayed in the standard neoclassical paradigm, but rather are often motivated by many other factors that have as their main foundation some aspects of “ethics.” We argue that it is not possible to understand fully an individual’s compliance decisions without considering in some form these ethical dimensions. Specifically, we argue here that there is much direct and indirect evidence that ethics differ across individuals and that these differences matter in significant ways for their compliance decisions. We then put this in the larger context of the inability of the standard neoclassical paradigm to explain compliance of at least some individuals, and we suggest several possible avenues by which theory can be expanded to incorporate ethics. We conclude by arguing that a full house of compliance strategies is needed to combat tax evasion, strategies that include the traditional “enforcement” paradigm suggested by and consistent with neoclassical theory, a less traditional “service” paradigm that recognizes the important role of a “kinder and gentler” tax administration in encouraging compliance, and, importantly, a new “trust” paradigm that is built on the foundation of ethics, in which the tax administration must recognize that it can erode the ethics of taxpayers by its own decisions.

The Tax Compliance Puzzle: Evidence from Theory and Practice

What lawmakers, administrators, and researchers do not know about tax compliance erodes the foundation of government finances by threatening the equity, efficiency, effectiveness, and yield of the tax system. Modern tax systems rely heavily on voluntary compliance for revenue collection. Unfortunately, tax administrators and researchers have only a limited understanding of why people pay taxes and how much tax liability is uncollected, even though this information is critical for measuring administrative performance and for targeting compliance strategies. This article examines evidence on taxpayer compliance, both domestic and international, to provide a synthesis of what is understood about compliance, how administrators and lawmakers may best collect the taxes that have been levied, and how administrators and researchers may measure noncompliance and the effectiveness of approaches toward its reduction.

What Shapes Attitudes Toward Paying Taxes? Evidence from Multicultural European Countries*

Objectives. Considerable evidence suggests that enforcement efforts cannot fully explain the high degree of tax compliance. To resolve this puzzle of tax compliance, several researchers have argued that citizens' attitudes toward paying taxes, defined as tax morale, helps to explain the high degree of tax compliance. However, most studies have treated tax morale as a black box, without discussing which factors shape it. Additionally, the tax compliance literature provides little empirical research that investigates attitudes toward paying taxes in Europe.Methods. Thus, this article is unique in its examination of citizen tax morale within three multicultural European countries, Switzerland, Belgium, and Spain, a choice that allows far more detailed examination of the impact of culture and institutions using data sets from the World Values Survey and the European Values Survey.Results. The results indicate the tendency that cultural and regional differences affect tax morale.Conclusion. The findings suggest that higher legitimacy for political institutions leads to higher tax morale.

Taxation and Conditional Cooperation

Why so many people pay their taxes, although fines and audit probability are low, has become a central question in the tax compliance literature. Concepts of Homo Economicus, endowed with a more refined motivation structure, help to shed light on the tax compliance puzzle. This paper provides empirical evidence for the relevance of conditional cooperation, using survey data from 30 European countries. The findings suggest that a higher perceived tax evasion leads to a lower tax morale, also when controlling for additional factors in a multivariate analysis.

More tax evasion research required in new millennium

Scholarly communication across disciplines is much harder than within disciplines. This article highlights the pervasive phenomenon of tax evasion and discusses the different theoretical models and research approaches that have been used to study the problem in the last two decades. Much of this research has been conducted in the U.S. Policy approaches suggested by this research may therefore have limited applicability in other countries. With theoretical models from a variety of disciplines available to use, and many unanswered questions remaining, international comparisons and multi-method approaches should be useful to the many policymakers and academic researchers interested in understanding the puzzle of tax compliance.

Expert Intermediaries and Legal Compliance: The Case of Tax Preparers

EPERTS are regularly called on for advice on legal matters. Yet little is known either about when such advice is sought or about the expert's influence on compliance with the law. As lawyers are the primary source of expert legal advice, legal scholars have been particularly attentive to the effects of legal advice on behavior but have had difficulty moving beyond speculation. Heinz observed: "To provide any reasonable definite answers to questions posed concerning the influence of lawyers ... one would need to have some measures of the nature of the relationships and interaction between lawyers and clients, including indices of lawyer influence."' Shavell recently analyzed the decision to consult a lawyer and the effect of the lawyer on legal compliance, but his focus was entirely theoretical.2 In this article, we assemble the empirical evidence urged by Heinz for one prominent area of legal compliance in which expert advice is commonly sought-tax-return preparation. We use the evidence to analyze both theoretically and empirically the types of tax-