Enhancing Tax Compliance through Coercive and Legitimate Power of Tax Authorities by Concurrently Diminishing or Facilitating Trust in Tax Authorities

Both coercion, such as strict auditing and the use of fines, and legitimate procedures, such as assistance by tax authorities, are often discussed as means of enhancing tax compliance. However, the psychological mechanisms that determine the effectiveness of each strategy are not clear. Although highly relevant, there is rare empirical literature examining the effects of both strategies applied in combination. It is assumed that coercion decreases implicit trust in tax authorities, leading to the perception of a hostile antagonistic tax climate and enforced tax compliance. Conversely, it is suggested that legitimate power increases reason‐based trust in the tax authorities, leading to the perception of a service climate and eventually to voluntary cooperation. The combination of both strategies is assumed to cause greater levels of intended compliance than each strategy alone. We conducted two experimental studies with convenience samples of 261 taxpayers overall. The studies describe tax authorities as having low or high coercive power (e.g., imposing lenient or severe sanctions) and/or low or high legitimate power (e.g., having nontransparent or transparent procedures). Data analyses provide supportive evidence for the assumptions regarding the impact on intended tax compliance. Coercive power did not reduce implicit trust in tax authorities; however, it had an effect on reason‐based trust, interaction climate, and intended tax compliance if applied solely. When wielded in combination with legitimate power, it had no effect.     

Voluntary versus enforced tax compliance: empirical evidence for the “slippery slope” framework

The “slippery slope” framework is an alternative approach for research in tax compliance that suggests two key variables to obtain taxpayers’ compliance: trust and power. Furthermore, two forms of compliance are distinguished. It is hypothesized that voluntary compliance depends primarily on trust in authorities, whereas enforced compliance is a function of the power attributed to authorities. Using a large data set (N = 3,071) on taxpayers from Austria, the United Kingdom, and the Czech Republic, these hypotheses could be confirmed. Furthermore, whereas voluntary compliance seems to be positively related to age and education, enforced compliance is negatively related to education.     

Tax compliance behaviour during the crisis: the case of Greek SMEs

This paper presents the results of a novel survey of 550 small and micro enterprises in Greece regarding their tax compliance behaviour and drawing some useful policy implications for a country facing one of the largest tax gaps in the developed world. We explore the determinants of such behaviour, by integrating economic and psychological perspectives on tax compliance. Results suggest that respondents perceive a strong connection between the quality of political and of tax institutions, while trust seems to play the most significant role in increasing intended compliance and in deterring strategic tax evasion. We contrast the theoretical results with the actual reported compliance behaviour of entrepreneurs and analyse how this behaviour is influenced by factors like perceived nature of power of tax authorities (legitimate versus coercive), perceived fairness of the tax system, etc. The strategy currently followed, that is toughening the profile of tax authorities is a viable short-term response to increase enforced tax compliance. The present study, however, has provided evidence on the multifaceted nature of power and trust and their relation with tax compliance, and the link between power and trust in political regulatory strategies. Current policies seem to completely miss that link.     

Regulating More Effectively: The Relationship between Procedural Justice, Legitimacy, and Tax Non-compliance

In recent years, a significant number of middle‐income taxpayers have been making use of aggressive tax planning strategies to reduce tax. In many cases, it is unclear whether these are designed and used by taxpayers to minimize tax legally or to avoid tax illegally. Those that are designed to exploit loopholes in tax law need to be dealt with in a way that restores faith and equity to the system. But how can tax authorities best manage taxpayers who may have inadvertently become involved in such illegal tax planning practices? Using longitudinal survey data, it will be shown that attempts to coerce and threaten taxpayers into compliance can undermine the legitimacy of the Tax Office's authority, which in turn can affect taxpayers' subsequent compliance behaviour. Responsive regulation, which is based on principles of procedural justice, will be discussed as an alternative enforcement strategy.     

A Typology of Tax Compliance in Developing Economies: Empirical Evidence from China's Shoe Industry

Drawing on fieldwork investigations of shoe manufacturers in southeastern China, this article provides empirical evidence for understanding these businesses’ taxpaying practices. We find that since business taxpayers largely regard tax law as illegitimate, instrumental considerations dominate these taxpayers’ decisions to pay or not pay taxes. We then incorporate “structural opportunities for evasion” and “perceived costs of evasion” to develop a two‐by‐two matrix to understand the following types of behavior: aggressive evasion, obliged compliance, strategic compliance, and reciprocal compliance. We argue that this matrix explains why value added tax fraud is widespread in China while voluntary compliance is rare. It also helps to illuminate compliance more generally in developing economies.     

IRC § 71 MAY IMPOVERISH CHILDREN,ENDANGER EX‐WIVES,AND DISRUPT FEDERALISM1

The Internal Revenue Code provides that alimony will be deductible to the payor and taxable to the payee. Although this treatment may seem contrary to the payee's interest, compared to making the payments non‐deductible and nontaxable, it can increase the payee's after‐tax income. The payor's deduction will allow larger payments at no after‐tax cost increase; if the payee is in a lower tax bracket, then even after paying taxes the payee will have more resources. Because this favorable treatment of alimony does not apply to child support, children of divorce are poorer. Nor does the favorable treatment apply to lump‐sum payments, making this option less generous, even though many states have phased down the grant of alimony. Because the definition of alimony requires that it end with the payee's death—to protect the treatment provided for lump sums—the tax system is on the wrong side of the issue of violence against ex‐spouses (typically the ex‐wife). The article proposes extending to other similar payments the favorable tax treatment now provided for alimony.     

Progressive Taxation,Fairness, and Compliance*

This paper examines the preferences for income tax progressivity, other tax fairness issues, and tax compliance of a national sample of nearly six hundred heads of U.S. households. The results reveal that mean public preferences for fair tax burdens are close to actual effective tax rates; however, the similarity between average preferred and actual effective tax rates masks an underlying schism between three groups: (I) those who believe tax rates should be higher for upper income persons (steep progressives), (2) those who prefer mildly progressive tax rates (mild progressives), and (3) those who believe tax rates should be flat (“flatraters). The analysis includes demographic and fairness profiles associated with tax rate preferences. Attitudes about the overall fairness of the income tax, exchange equity with the federal government, government spending, tax complexity, and tax compliance behavior are examined. In general, respondents' stated preferences for vertical equity approximate the current distribution of the income tax burden, yet there is a relatively high consensus that the income tax is unfair, especially with regard to the ability of wealthy taxpayers to exploit loopholes to avoid paying their fair share, and that respondents regard their own tax burdens as unfair. These results suggest that providing information to the public about the relative amount of income taxes paid by upper income individuals and the effects of recent limitations on “loopholes” could improve public attitudes about the fairness of the income tax and tax compliance.     

Neutralization and Tax Evasion: How Effective Would a Moral Appeal Be in Improving Compliance to Tax Laws?

The failure of individuals to pay their taxes in full is a serious budgetary problem for the federal government. Existing research (Schwartz and Orleans, 1967; Grasmick and Scott, 1982) suggests that efforts to increase the guilt feelings experienced for tax evasion might improve compliance. However, neutralization theory (Sykes and Matza, 1957) predicts that guilt feelings can be reduced by neutralization strategies which justify guilt-producing behavior, compromising the inhibiting effect of guilt feelings. Our research shows that through the use of neutralization strategies which justify tax evasion the inhibiting effect of guilt feelings is sharply reduced. The implications of this finding for tax compliance programs based on appeals to the moral obligation of paying taxes are discussed.     

DETERRENCE AND MORAL PERSUASION EFFECTS ON CORPORATE TAX COMPLIANCE: FINDINGS FROM A RANDOMIZED CONTROLLED TRIAL*

Previous studies on tax compliance have focused primarily on the tax‐reporting behavior of individuals. This study reports results from a randomized field test of the effects of deterrence and moral persuasion on the tax‐reporting behavior of 4,395 corporations in Israel. Two experimental groups received tax letters, one conveying a deterrent message and the other a moral persuasion message. Three types of measures are used to evaluate compliance based on the magnitude of the difference‐in‐differences of means in 1) gross sales values reported to the authority, 2) tax dollars paid to the authority, and 3) tax deductions. Overall, both deterrence and moral persuasion approaches do not produce statistically significant greater compliance compared with control conditions. These results do not support the ability of a policy of sending tax letters to increase substantively the reporting of true tax liability or tax payments by corporations. However, these results also show that moral persuasion can be counterproductive: Corporations in this experimental group show an increase rather than a decrease in tax deductions, which translates into loss of state revenues. The implications for theory, research, and tax policy are discussed.     

The Role of Trust in Nurturing Compliance: A Study of Accused Tax Avoiders

Why an institution's rules and regulations are obeyed or disobeyed is an important question for regulatory agencies. This paper discusses the findings of an empirical study that shows that the use of threat and legal coercion as a regulatory tool--in addition to being more expensive to implement--can sometimes be ineffective in gaining compliance. Using survey data collected from 2,292 taxpayers accused of tax avoidance, it will be demonstrated that variables such as trust need to be considered when managing noncompliance. If regulators are seen to be acting fairly, people will trust the motives of that authority, and will defer to their decisions voluntarily. This paper therefore argues that to shape desired behavior, regulators will need to move beyond motivation linked purely to deterrence. Strategies directed at reducing levels of distrust between the two sides may prove particularly effective in gaining voluntary compliance with an organization's rules and regulations.     

Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation

A psychological tax contract goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. As a contractual relationship implies duties and rights for each contract party, tax compliance is increased by sticking to the fiscal exchange paradigm between citizens and the state. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to tax payments as long as the political process is perceived to be fair and legitimate. Moreover, friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.     

Family and tax registers in the Aegean Islands during the Ottoman period

This article examines types of tax registers that provide a picture of families in the Aegean Islands during the Ottoman occupation. Numerical data from the islands of Andros, Myconos, Syros, Serifos, and Patmos are emphasized. Accounts by travelers and Roman Catholic priests and other documentation of that time are also examined. The article attempts to verify the reliability of data from the registers regarding family size, number of households, the possibility of household sharing by more than one family, and number of household heads. Records of personal taxes (ispence, or poll tax) indicate that the families on the islands during the 17th and 18th centuries had only a few members. Exact data cannot be derived because the communities attempted to redistribute taxes according to their own needs rather than following official Ottoman orders. Similar indirect information is derived from another kind of register that recorded the transfer of taxpayers' properties. The number of houses for some islands seems to have steadily increased although the number of family shares did not. This phenomenon may be linked to the status of ownership of immovable property, the horizontal property that was applied, and the nonexistence of cohabitation of extended families. Another issue concerns the number of widows in the tax registers. This large number does not correspond to the family status of these women but rather to tax practices exercised by the communities and participation of these women in the economic and social life of the islands.     

Encouraging Tax Compliance With Positive Incentives: A Conceptual Framework and Research Directions*

Drawing on learning and social psychological research, we identify the processes by which positive incentives induce compliance with regulatory laws, using tax as a specific example. We evaluate the likely effects of various positive incentives on four different dimensions of compliance decisions: instrumental consequences, normative considerations, internalized motivation, and allegiance to authority. Linking incentives specifically to compliant behavior invokes a cost/benefit analysis, lowers intrinsic motivation and allegiance to authority, and requires authorities to monitor citizens and to distinguish between compliant and noncompliant behaviors. The alternative is to present the incentives as an attempt by the enforcement authorities to cooperate with the citizens. This method is less likely to invoke cost/benefit calculations; requires less intervention by authorities; and increases intrinsic motivation, consideration of normative issues, and allegiance to authorities. Prior research suggests that respectful treatment and praise may be more effective incentives for inducing long-lasting compliance than are materialistic incentives because people have a strong tendency to reciprocate actions they receive from authorities. Our analysis leads to proposals for program implementation and evaluation and raises some theoretical questions that need additional research.     

降低税收遵从成本 创新纳税服务模式

纳税人需要尽可能低的税收遵从成本,而税务机关希望纳税人最大限度地遵从税法,征纳双方在税收征管的博弈有个理性选择的契合点——降低税收遵从成本。因此,研究纳税人税收遵从成本与纳税服务的相关性,探索降低企业税收遵从成本来推进纳税服务工作,通过改进纳税服务措施来降低纳税人的税收遵从成本,形成二者间的良性循环,对我国企业、税务机关和国家经济健康的发展都具有重要的意义。     

From Rai stones to Blockchains: The transformation of payments

Computer technology has dramatically changed the marketplace, including the way we make payments. Electronic access to funds expands liquidity and the relationships within payment networks allow strangers to build bridges of trust, increasing trade and human interaction. But electronic payment channels have also presented new challenges in security and privacy, including new forms of criminal behavior and tax avoidance for governments to address. This essay outlines some of the legal, social, and technological implications from this transformation of payments and assesses future challenges in the electronic payments frontier.     

Examining Procedural Justice and Legitimacy in Corporate Offending and Beyond‐Compliance Behavior: The Efficacy of Direct and Indirect Regulatory Interactions

Tom Tyler's Procedural Justice Theory has received support in a variety of studies using criminal justice authorities as the research focus. To date, the theory has not been empirically tested using corporate malfeasance as an outcome, despite evidence that procedural justice is important in achieving regulatory compliance. This study uses factorial survey methods to examine whether corporate behavior is predicted by professionals' perceptions of procedural justice and legal legitimacy. We find that procedural justice and legitimacy considerations are salient only when managers have direct contact with regulatory authorities. This supports John Braithwaite's argument that effective regulation is enhanced by microlevel interactions in which procedural justice can be effectively leveraged to promote compliance.     

Juror Perceptions of the Legitimacy of Legal Authorities and Decision Making in Criminal Cases

Literature on trust in legal authorities and institutions demonstrates that trust affects individual behavior, yet there is little research on whether attitudes toward legal authorities such as the police or courts influence juror behavior as a third party assessing evidence and determining legal outcomes for others. Additionally, the literature on juror decision making confirms that juror race is an important predictor of juror decisions, but explanations for differences among racial groups are not clear. Since minority groups hold less favorable attitudes toward legal authorities generally, legitimacy theory may help explain racial differences in decision making among jurors. Using data from nearly 2,000 jurors in felony trials, this research utilizes multilevel modeling techniques to find that jurors' trust in legal authorities is related to juror outcomes, though the effect of juror trust and confidence in the police is opposite that of juror trust and confidence in the courts. Additionally, juror race conditions the effect of trust in police and courts. Trust is a stronger predictor of both perceptions of evidence and voting for black jurors than it is for white jurors.     

Medicaid program; State share of financial participation--HCFA. Interim final rule with comment

Under certain circumstances, States are currently permitted to use voluntary contributions (donated funds) from providers and all revenues from State-imposed taxes, as the State share of the costs of the Medicaid program. There is now widespread use of State donations or other voluntary provider payment programs that unfairly affect the Federal share of Federal Financial Participation (FFP). This practice circumvents the States' statutory obligation to expend funds for medical assistance. Therefore, effective January 1, 1992, this interim final rule requires that the amount of funds donated from Medicaid providers be offset from Medicaid expenditures incurred on or after this date before calculating the amount of FFP in Medicaid expenditures. It also interprets section 4701(b)(2) of the Omnibus Budget Reconciliation Act of 1990, which added section 1903(i)(10) to the Social Security Act. Section 1903(i)(10), precludes Federal Financial Participation (FFP) in State payments to hospitals, nursing facilities, and intermediate care facilities for the mentally retarded for facility expenditures that are attributable to provider-specific State taxes.     

Perceived Distributive Fairness of EU Transfer Payments, Outcome Favorability, Identity, and EU-Tax Compliance

In a representative UK study (N = 1000) the link between distributive fairness perceptions, outcome favorability, identity, and tax compliance was researched in the context of European transfer payments. Results showed that both forms of tax compliance (i.e., individual and collective EU-tax compliance) were influenced by perceived distributive fairness judgments of EU transfer payments. Fairness itself was related to perceived outcome favorability (i.e., whether their own nation benefits from the EU in financial as well as socio-political terms). Additionally, national identifiers (i.e., people identifying with their own nation, but not with Europe) perceived EU membership as unbeneficial in financial as well as in socio-political terms and thus considered the transfer payments as less fair. Dual identifiers (i.e., people identifying with their own nation and with Europe) perceived the socio-political outcomes from EU membership as more beneficial and thus evaluated the transfer payments as fairer.     

Can Tax Authorities Scrutinise the Ideas of Foreign Charities? The ECJ's Persche Judgment and Lessons from US Tax Law

The European Court of Justice's (ECJ's) recent Persche judgment poses important questions about the relationship between taxation of gifts and charitable purposes in the light of EC law requirements. This article argues that by applying its established case‐law to the matter of donors to foreign recipient bodies, the ECJ takes a position on the social role of both charities and tax deduction. Moreover, the position of the ECJ clearly paves the way for tax authorities to check the objectives and the values pursued by recipient bodies seeking tax‐preferred status, a situation that recalls a similar power recognised under specific circumstances of the US Internal Revenue Services. Arguably, the ECJ case‐law has more profound consequences on charitable action, since it seems that the power accorded to tax authorities of the Member States to check the purposes of charitable organisations leads to a cosmopolitan apprehension of charitable action while it pushes charities to enhance transparency in their activities.