Framing and salience effects in tax evasion decisions – An experiment on underreporting and overdeducting

Martin Fochmann and Nadja Wolf

Journal of Economic Psychology, 2019, vol. 72, issue C, 260-277

Abstract: Using different controlled and incentivized experiments, we analyze whether taxpayers are more willing to evade taxes by underreporting positive income (e.g., business or nonbusiness income) than by overdeducting negative income (e.g., deductions, credits, or losses). We robustly observe an asymmetric tax evasion behavior. Specifically, individuals are less compliant in case of positive income. This result is robust to a variation in which the after-tax payoffs from the cases with positive and negative income are offset against each other – even though offsetting reduces the asymmetric effect significantly. In an experimental environment in which the interaction of positive and negative income reporting is made very saliently and in which we consequently expect that subjects decide on both tax evasion decisions jointly, the asymmetric effect vanishes. We therefore provide evidence that (1) tax evasion behavior is asymmetrically in case of positive and negative income reporting, (2) offsetting reduces this asymmetric effect and (3) the salience of income interaction plays an important role in tax evasion decisions.

Keywords: Tax evasion; Cheating; Prospect theory; Behavioral taxation; Experimental economics (search for similar items in EconPapers)
JEL-codes: C91 D14 H26 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:72:y:2019:i:c:p:260-277

DOI: 10.1016/j.joep.2019.03.005

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