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Taxman's Dilemma: Coercion or Persuasion? Evidence from a Randomized Field Experiment in Ethiopia

Author

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  • Abebe Shimeles
  • Daniel Zerfu Gurara
  • Firew Woldeyes

Abstract

We analyze data from a randomized controlled trial of two innovative anti-tax evasion schemes in Ethiopia that signal threats of audit and complimentary messages that encourage tax morale. Our results indicate that the threat of audit reduces tax evasion significantly, and its effect is higher in businesses commonly suspected of high tax evasion rates. We also find that appealing to the tax morale promotes compliance but slightly less than that of audit threat. Our results are robust to different estimation strategies and less sensitive to potential confounding factors.

Suggested Citation

  • Abebe Shimeles & Daniel Zerfu Gurara & Firew Woldeyes, 2017. "Taxman's Dilemma: Coercion or Persuasion? Evidence from a Randomized Field Experiment in Ethiopia," American Economic Review, American Economic Association, vol. 107(5), pages 420-424, May.
    • Handle: RePEc:aea:aecrev:v:107:y:2017:i:5:p:420-24
    Note: DOI: 10.1257/aer.p20171141
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    Citations

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    Cited by:

    1. Cécile Bazart & Mathieu Lefebvre & Julie Rosaz, 2019. "Promoting socially desirable behaviors: experimental comparison of the procedures of persuasion and commitment," Working Papers 1907, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    2. Jacopo Bizzotto & Alessandro De Chiara, 2022. "Frequent audits and honest audits," Working Papers 202202, Oslo Metropolitan University, Oslo Business School.
    3. Amadou Boly & Maty Konte & Abebe Shimeles, 2021. "Corruption Perception and Attitude Towards Taxation in Africa [To Pay or Not to Pay? Citizens’ Attitudes Toward Taxation in Kenya, Tanzania, Uganda, and South Africa]," Journal of African Economies, Centre for the Study of African Economies, vol. 30(Supplemen), pages 140-157.
    4. Andr's Gonz'lez Lira & Ahmed Mushfiq Mobarak, 2018. "Slippery Fish: Enforcing Regulation when Agents Learn and Adapt," Cowles Foundation Discussion Papers 2143R, Cowles Foundation for Research in Economics, Yale University, revised Mar 2021.
    5. Biddle, Nicholas & Fels, Katja M. & Sinning, Mathias, 2018. "Behavioral insights on business taxation: Evidence from two natural field experiments," Journal of Behavioral and Experimental Finance, Elsevier, vol. 18(C), pages 30-49.
    6. Belnap, Andrew & Welsch, Anthony & Williams, Braden, 2023. "Remote tax authority," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    7. Dina Pomeranz & José Vila-Belda, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," Annual Review of Economics, Annual Reviews, vol. 11(1), pages 755-781, August.
    8. Laura L. Leets & Amber Sprenger & Robert O. Hartman & Nicholas W. Kohn & Juli Simon Thomas & Chrissy T. Vu & Sandi Aguirre & Sanith Wijesinghe, 2020. "Effectiveness of nudges on small business tax compliance behavior," Journal of Behavioral Public Administration, Center for Experimental and Behavioral Public Administration, vol. 3(2).
    9. Tourek, Gabriel, 2022. "Targeting in tax behavior: Evidence from Rwandan firms," Journal of Development Economics, Elsevier, vol. 158(C).
    10. Antinyan, Armenak & Asatryan, Zareh, 2019. "Nudging for tax compliance: A meta-analysis," ZEW Discussion Papers 19-055, ZEW - Leibniz Centre for European Economic Research.
    11. Christopher Hoy & Luke McKenzie & Mathias Sinning, 2024. "Improving Tax Compliance without Increasing Revenue: Evidence from Population-Wide Randomized Controlled Trials in Papua New Guinea," Economic Development and Cultural Change, University of Chicago Press, vol. 72(2), pages 691-723.
    12. Mascagni, Giulia & Mengistu, Andualem T. & Woldeyes, Firew B., 2021. "Can ICTs increase tax compliance? Evidence on taxpayer responses to technological innovation in Ethiopia," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 172-193.
    13. Kresch, Evan Plous & Walker, Mark & Best, Michael Carlos & Gerard, François & Naritomi, Joana, 2023. "Sanitation and property tax compliance: Analyzing the social contract in Brazil," Journal of Development Economics, Elsevier, vol. 160(C).
    14. Boly, Amadou & Konte, Maty & Shimeles, Abebe, 2019. "Corruption and tax morale in Africa," MERIT Working Papers 2019-042, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    15. Yogama, Eko Arief & Gray, Daniel J. & Rablen, Matthew D., 2024. "Nudging for prompt tax penalty payment: Evidence from a field experiment in Indonesia," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 548-579.
    16. Andres Gonzalez Lira & Ahmed Mushfiq Mobarak, 2018. "Enforcing Regulation under Illicit Adaptation," HKUST IEMS Working Paper Series 2018-57, HKUST Institute for Emerging Market Studies, revised Aug 2018.
    17. Biddle, Nicholas & Fels, Katja & Sinning, Mathias, 2017. "Behavioral insights and business taxation: Evidence from two randomized controlled trials," Ruhr Economic Papers 698, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    18. Nigus, Halefom Yigzaw & Nillesen, Eleonora & Mohnen, Pierre & Di Falco, Salvatore, 2023. "Markets and socially responsible behavior: do punishment and religion matter?," Journal of Economic Behavior & Organization, Elsevier, vol. 209(C), pages 572-593.
    19. Mascagni, Giulia & Santoro, Fabrizio & Mukama, Denis & Karangwa, John & Hakizimana, Napthal, 2022. "Active Ghosts: Nil-filing in Rwanda," World Development, Elsevier, vol. 152(C).
    20. Gonzalez-Lira, Andres & Mobarak, Ahmed Mushfiq, 2019. "Slippery Fish: Enforcing Regulation under Subversive Adaptation," IZA Discussion Papers 12179, Institute of Labor Economics (IZA).
    21. Asatryan, Zareh & Peichl, Andreas, 2016. "Responses of firms to tax, administrative and accounting rules: Evidence from Armenia," ZEW Discussion Papers 16-065, ZEW - Leibniz Centre for European Economic Research.
    22. Santoro, Fabrizio & Mascagni, Giulia, 2023. "Visual nudges: How deterrence and equity shape tax attitudes and behaviour in Rwanda," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 107(C).
    23. Tasew Tadesse, 2023. "Explaining Customs Tax Evasion in Ethiopia: The Effect of Trade Tax, Law Enforcement, and Product Characteristics," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 15(3), pages 330-353, September.
    24. repec:idq:ictduk:13845 is not listed on IDEAS
    25. Santoro, Fabrizio, 2021. "To file or not to file? Another dimension of tax compliance - the Eswatini Taxpayers’ survey," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 95(C).

    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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