Traditionally, tax compliance has been examined in terms of levels of enforcement (see Allingham and Sandmo 1972; Cowell 1990; Yitzhaki 1974). Several researchers argue, however, that tax compliance cannot be explained entirely by levels of enforcement (Alm, Sanchez, and De Juan 1995; Elffers 1991, 2000: Frey 1997; Graetz and Wilde 1985; Torgler 2002a). Countries set the levels of audit and penalty so low (see Andreoni, Erard, and Feinstein 1998) 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. Furthermore, very large values for risk aversion are necessary to reach the tax compliance observed in many countries. In the face of these difficulties, researchers have suggested that further factors need to be analyzed. It is plausible that tax compliance is affected by other factors such as government services, trust in the institutions, perception of others' tax compliance, and social norms. Aim, Sanchez, and De Juan (1995), for example, compared identical tax compliance experiments conducted in Spain and the United States and found that subjects in the United States exhibited higher compliance than subjects in experiments in Spain, and attributed these differences to a higher "social norm" of compliance in the United States.
This paper focuses on the possible influence of social norms on tax compliance and tax morale using both field data and data obtained via laboratory experiments. Tax compliance is a complex behavioral issue and its investigation requires the use of a variety of methods and data sources as each instrument has advantages and shortcomings. Aim and Martinez-Vazquez (2001) have classified social norms into two categories: internal and external norms. Internal norms refer to "how the taxpayer judges his or her own compliance behavior in light of the individual's own feelings about what is proper, acceptable, or moral behavior" (Alm and Martinez-Vazquez 2001: 10). External norms refer to "how the taxpayer feels he or she is treated by government in such areas as the payment of taxes, the receipt of government services, or the responsiveness of government decisions" (Alm and Martinez-Vazquez 2001: 10). Based on this definition, we test the relationship between internal and external social norms and tax morale and tax compliance in Costa Rica and Switzerland. In this cross-cultural comparison, various factors are held constant, thus we are able to isolate possible cultural differences (see Torgler 2002a).
Costa Rica and Switzerland are chosen as case studies because both countries show almost identical values when comparing the importance of tax morale as measured by the World Values Survey (Switzerland 1989/90) and the Latinobarometro (Costa Rica 1998). Despite their different cultures and histories of compliance, both countries had the smallest "shadow economy" in their regions (i.e., Latin America and OECD; see Schneider and Enste 2000 and Schneider 2002).
In addition, these two countries were chosen for study because of the lack of comparative research on tax compliance between Europe and Latin America (see Andreoni, Erard, and Feinstein 1998).
Our examination begins with a brief overview of tax morale in Costa Rica and Switzerland. This overview sets the background for the presentation of experimental evidence and multivariate analysis, which reveals the shape of tax morale in each country. The final section summarizes the findings and offers some concluding remarks.
Tax Morale in Costa Rica and Switzerland
To understand differences in tax compliance and tax morale across cultures, we begin with a short overview of general taxation issues to understand possible institutional and cultural differences.
1. Costa Rica
Costa Rica is confronted with a government's deficit and long-term debt problems. …