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The effect of competition on tax compliance: The role of audit rules and shame

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  • Casagrande, Alberto
  • Cagno, Daniela Di
  • Pandimiglio, Alessandro
  • Spallone, Marco

Abstract

Traditional models of tax enforcement assume that the decision to be tax compliant is the result of an interaction between individual taxpayers and a dedicated tax agency. Evidence shows that tax compliance is the result of a far more complex decision rule, involving both individual and group motivations, along with non-monetary components. In this paper, we consider a game in which the individual decision to be tax compliant is affected both by strategic competition between taxpayers and the psychological cost of being detected (i.e., shame). We ran a laboratory experiment using a sample of 138 students at the Centro di Economia Sperimentale A Roma Est (CESARE) to evaluate the efficiency of random versus targeted audit rules and to verify the interaction between strategic competition and shame. The experimental results show that strategic competition between taxpayers plays a critical role in reducing tax evasion. In addition, shame reinforces this competition, but plays no significant role on its own (i.e., without competition).

Suggested Citation

  • Casagrande, Alberto & Cagno, Daniela Di & Pandimiglio, Alessandro & Spallone, Marco, 2015. "The effect of competition on tax compliance: The role of audit rules and shame," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 59(C), pages 96-110.
    • Handle: RePEc:eee:soceco:v:59:y:2015:i:c:p:96-110
    DOI: 10.1016/j.socec.2015.08.006
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    Cited by:

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    2. Marina Agranov & Anastasia Buyalskaya, 2022. "Deterrence Effects of Enforcement Schemes: An Experimental Study," Management Science, INFORMS, vol. 68(5), pages 3573-3589, May.
    3. Alm, James & Bernasconi, Michele & Laury, Susan & Lee, Daniel J. & Wallace, Sally, 2017. "Culture, compliance, and confidentiality: Taxpayer behavior in the United States and Italy," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 176-196.
    4. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    5. Pukelienė Violeta & Kažemekaitytė Austėja, 2016. "Tax Behaviour: Assessment of Tax Compliance in European Union Countries," Ekonomika (Economics), Sciendo, vol. 95(2), pages 30-56, February.
    6. James Alm & Matthias Kasper, 2020. "Laboratory Experiments," Working Papers 2008, Tulane University, Department of Economics.
    7. Engel, Christoph & Zamir, Eyal, 2024. "Is transparency a blessing or a curse? An experimental horse race between accountability and extortionary corruption," International Review of Law and Economics, Elsevier, vol. 78(C).
    8. Samiji, Ally A. & Chegere, Martin J. & Ruhinduka, Remidius D., 2023. "The Effect of Carrot and Stick Measures in Fostering Taxpayer Compliance in Tanzania: Evidence from a Laboratory Experiment," African Journal of Economic Review, African Journal of Economic Review, vol. 11(5), December.

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    More about this item

    Keywords

    Tax evasion; Lab experiment; Shame; Competition;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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