Academic journal article Economia

Reciprocity and Willingness to Pay Taxes: Evidence from a Survey Experiment in Latin America

Academic journal article Economia

Reciprocity and Willingness to Pay Taxes: Evidence from a Survey Experiment in Latin America

Article excerpt

Why do people pay taxes? One obvious answer is that there are enforcement mechanisms (such as fines, penalties, and even imprisonment) that coerce them to do so. This deterrence approach to tax compliance is formally analyzed by Allingham and Sandmo, who apply the canonical rational choice model of expected utility maximization to study this issue.1 Their findings suggest that tax evasion is negatively associated with the probability of detection and the severity of punishment.

This view has been criticized by various authors, however, because deterrence alone cannot explain the level of tax compliance actually observed in many countries.2 In other words, the levels of observed detection probabilities and fines are too low to explain the rather low levels of tax evasion observed in developed economies.3 This has given rise to a growing literature that analyzes the importance of behavioral and cultural aspects in explaining taxpayer behavior.4 These other nondeterrence arguments have been grouped under the broad concept of tax morale.5 This concept encompasses moral rules and sentiments that make citizens fulfill their tax obligations, social norms that make cheating on taxes an undesirable action when the rest of the population is complying, and a sort of reciprocity response by the individual in relation to the state, in the sense that citizens will comply with their tax obligation when they see that the government also performs its commitments in terms of delivering services and other public goods.

Torgler provides evidence that some of these different determinants associated with tax morale positively affect tax compliance.6 In a study of Switzerland, he finds that if people believe that others are honest, then their willingness to pay taxes increases. Barone and Mocetti indicate that the attitude toward paying taxes in Italy is better in municipalities where resources are spent more efficiently; Hallsworth and others show that including messages on social norms and public goods in standard tax payment reminder letters considerably enhances tax compliance in the United Kingdom; and Dwenger and others demonstrate that tax-morale-driven determinants like duty-to-comply preferences have an important role in Germany.7 But others find that these noneconomic reasons are irrelevant. For example, Fellner, Sausgruber, and Traxler, who conduct a field experiment in Austria, show that neither appealing to morals nor imparting information about others' behavior enhances compliance on aggregate.8 Similarly, Kleven and others find that in Denmark, proxies of social and cultural factors (namely, gender, age, marital status, church membership, and place of residence) have a very modest effect on tax behavior.9 Finally, Slemrod, Blumenthal, and Christian and Blumenthal, Christian, and Slemrod report that normative appeals to social norms and equity have no effect on tax compliance in Minnesota.10

Recent field experiments in Latin America have also produced mixed results. Del Caprio finds that a group of taxpayers that received information about the average rate of compliance was more likely to comply with the property tax in Peru than the control group, but the enforcement letter did not have any significant effect.11 In contrast, Castro and Scartascini find that, in Argentina, deterrence was the most effective message, while the fairness and equity messages did not have any effect, on average.12

As Luttmer and Singhal point out, one possible interpretation of the null findings is that such interventions are often not powerful enough to affect tax morale: "A few lines of text in a mailed letter may just not be sufficient to cause taxpayers to update their beliefs."13 Because most papers only look at the effect of the intervention on tax evasion, the authors cannot identify whether the null finding is due to a lack of an effect of beliefs on tax evasion or a lack of effect of the intervention on beliefs.

The purpose of this paper is to provide new evidence on the relationship between tax morale and tax compliance, explicitly exploring how information letters affect beliefs. …

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