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Tax compliance and obedience to authority at home and in the lab: A new experimental approach

Published online by Cambridge University Press:  14 March 2025

C. Bram Cadsby ,
Elizabeth Maynes  and
Viswanath Umashanker Trivedi
C. Bram Cadsby*
Affiliation:
Department of Economics, University of Guelph, Guelph, ON N1G 2W1, Canada
Elizabeth Maynes*
Affiliation:
Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3, Canada
Viswanath Umashanker Trivedi*
Affiliation:
Schulich School of Business, York University, 4700 Keele Street, Toronto, ON M3J 1P3, Canada
*
e-mail: [email protected]
e-mail: [email protected]
e-mail: [email protected]
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Abstract

In most experimental studies of tax evasion, participants are instructed that they may report any amount of income from zero up to the amount they actually earned or received. This amounts to an invitation to gamble. In contrast, real-world tax authorities unambiguously demand compliance. We develop two new settings for conducting tax experiments. Both involve an explicit demand for compliance. Thus, we can determine whether knowing that the experimental authority would regard evasion as wrongful disobedience will influence compliance decisions. We demonstrate that simply telling people that they are required to pay a “participation fee” analogous to a tax produces remarkably high compliance rates and less sensitivity to changes in economic variables than in the earlier experimental literature using invitation-to-gamble language. This suggests that many people pay taxes despite the financial attraction of non-compliance because they are strongly inclined towards obeying authority. Furthermore, we show that giving participants a week to make their reporting decisions at home without an authority figure physically present overcomes the inclination to obey for some people, significantly lowering compliance rates. However, the majority still complies, even after the audit rate falls from 25% to 1%, which would make noncompliance extremely attractive if it were viewed only as a simple matter of risk and expected return.

Keywords

TaxComplianceEvasionExperimentObedience

JEL classification

C91: Laboratory, Individual Behavior H26: Tax Evasion and Avoidance
Type
Research Article
Information
Experimental Economics , Volume 9 , Issue 4 , December 2006 , pp. 343 - 359
Copyright
Copyright © 2006 Economic Science Association

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Footnotes

Electronic Supplementary Material Supplementary material is available in the online version of this article at http://dx.doi.org/10.1007/s10683-006-7053-8.

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