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Knowledge Is Power. Improving Tax Compliance By Means Of Boosting Tax Literacy

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  • Nichita Ramona-Anca

    (Romanian Academy, Bucharest,)

Abstract

Because empirical investigations entailing classical tax evasion models often reported consistent deviations from perfect rationality, social scientists interested in tax behavior have extended their area of research by focusing on compliance determinants outside the economic spectrum (i.e., tax rate, audit rate, penalty rate, income). Consequently, a manifold of variables from psychology (attitudes, norms, perceptions), sociology (education, gender) or political science (fiscal policy, tax law complexity, voting) were taken into account as determinants of taxpayers’ decisions. In addition, behavioral models like the Australian Taxation Office compliance model, New Zealand Inland Revenue compliance model or the “slippery slope” framework have incorporated such variables. Recent empirical developments have indicated that tax literacy can be counted as a significant determinant of tax compliance. Forasmuch compliance strategies exclusively grounded on coercion are rather costly (high monitoring outlays, large staff employed in the monitoring process, etc.), generally yield short-term outcomes and may attract the resistance of otherwise honest taxpayers, authorities worldwide have begun searching for the adequate combination between cooperation and coercion, in which the emphasis on the former should prevail. State budgets are better off when authorities enact compliance strategies extensively built on cooperation, for they generate long-term results, require fewer outlays and secure the support of most honest taxpayers. The current paper draws on the effects of tax literacy (i.e., the level of tax knowledge) on taxpayers’ behavior, highlighting miscellaneous strategies employed by national tax authorities around the world. As a general trend, increasing tax literacy among very young and soon-to-be taxpayers is preferred by several tax authorities, because potential contributors have to be accustomed to the requirements of tax systems before entering the economic market as employees, self-employed or employers. The use of media campaigns, tax lotteries and online filling systems are included as well among widely used strategies.

Suggested Citation

  • Nichita Ramona-Anca, 2015. "Knowledge Is Power. Improving Tax Compliance By Means Of Boosting Tax Literacy," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 770-774, July.
  • Handle: RePEc:ora:journl:v:1:y:2015:i:1:p:770-774
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    References listed on IDEAS

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    More about this item

    Keywords

    tax literacy; tax compliance; tax authorities; knowledge;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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