The Effect of Competition on Tax Compliance: The Role of Audit Rules and Shame

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

No 5/2015, Working Papers CESARE from Dipartimento di Economia e Finanza, LUISS Guido Carli

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), in the experimental lab at the LUISS "Guido Carli" University of Rome, 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).

Keywords: Tax evasion; Lab Experiment; Shame; Competition (search for similar items in EconPapers)
JEL-codes: C72 C91 H26 (search for similar items in EconPapers)
Date: 2015-05
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue, nep-pub and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: The effect of competition on tax compliance: The role of audit rules and shame (2015)
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