Academic journal article Journal of Social Research & Policy

Relations between Procedural Fairness, Tax Morale, Institutional Trust and Tax Evasion

Academic journal article Journal of Social Research & Policy

Relations between Procedural Fairness, Tax Morale, Institutional Trust and Tax Evasion

Article excerpt

Introduction

Taxpayer's behaviour has been mainly studied as a problem of choice under uncertainty. The pure gamble model formulated by Allingham & Sandmo (1972) assumes a rational, self-interested risk-averse and amoral individual whose preferences are governed by the von Neumann-Morgenstern utility function. Tax evasion is risky because there is a certain probability that this activity will be discovered and punished. The results of surveys and experiments have mainly supported the crucial role of audit likelihood, legal sanctions severity, tax rate level and income level (e.g. Alm, Jackson & McKee, 1992; Anderhub et al., 2001; Baldry, 1987; Bergman & Nevarez, 2006; Carnes & Englebrecht, 1995; Clotfelter, 1983; Gërxhani & Schram, 2006; Slemrod, Blumenthal & Christian, 2001; Trivendi, Shehada & Lynn, 2003; Witte & Woodbury, 1985).

The Deterrence Model predicts that taxpayers are generally engaged in tax evasion, but the fact that compliance is far greater in practice than is commonly predicted in the model seems to indicate that taxpayers may also be motivated by a variety of other intrinsic factors. The model neglects the psychological and social aspects of the decision to evade taxes and only considers fiscal constraints. Therefore, the role played by moral and judicial factors in determining taxpayers' decisions focuses researchers' attention on this aspect. Erard & Feinstein (1994, p.74) point out: "One important reason why the conventional expected utility model of tax compliance overpredicts the prevalence and extent of tax evasion is that tax compliance behaviour is assumed to be motivated solely by financial considerations, whereas in reality many taxpayers are influenced by variety of other feelings, which we will call moral sentiments".

In recent years the concept of tax morale has been used in much research. Although Feld & Frey (2002, p. 88-89) claim that "most studies treat tax morale as a black box without discussing or even considering how it might arise or being part of it might be maintained. It is usually perceived as being part of the meta-preferences of taxpayers and used as a residuum in the analysis capturing unknown influences on tax evasion". The term tax morale was introduced in 1960 by Schmoders and was defined as the "attitude of a group or the whole population of taxpayers regarding the question of accomplishment or neglect of their tax duties" (in: Kirchler, 2007, p. 99). Nowadays tax morale is considered as an internalized obligation (Feld & Frey, 2005) or intrinsic motivation to pay one's taxes (Alm & Torgler, 2006). Taxpayers will pay their taxes because they believe that it is morally right to do so, even though the probability of being caught cheating is low. Alm & Torger (2006) with data sets from World Value Survey conducted a cross-country comparison of tax morale. Researchers have included to analysis data from the United States and 14 European countries with broadly similar levels of economic development and systems of taxation. The study revealed that individuals in the United States have the highest tax morale of all the countries investigated, followed by respondents in Switzerland, Austria, Denmark, Sweden and Spain. The cross-country comparison conducted by Alm & Torgler (2006) is based on a single-item measure-only one question was used to assess the level of tax morale. The authors were aware that a single-item measure has some disadvantages and should be treated with some caution because "tax morale is likely to be a multi-dimensional concept which may require a multi-item measurement tool" (Alm & Torgler, 2006, p. 229). The crucial question is how respondents understand the term "cheating on tax".

In most countries there is legal distinction between tax avoidance and tax evasion. The former refers to attempts to reduce tax liability through legal means such as loopholes in the law and creative designing of one's own income or deduction (Kirchler, 2007). …

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