Corruption, Tax Morale and Tax Evasion: An Experimental Study from Indonesia

Yudistira Permana and Muhammad Ryan Sanjaya

Journal of Tax Reform, 2025, vol. 11, issue 2, 434-450

Abstract: Enhancing tax compliance are crucial for maintaining a robust and fair tax system. However, bureaucratic corruption is likely to deteriorate those efforts and morality, hence resulting in tax-abusive behaviour (tax avoidance and tax evasion). We present the experimental evidence on how developing tax morality is crucial to enhancing tax compliance. Specifically, we use progressive tax system, pre-filled form, audit scheme, and provide with tax rates of return (which proxies for the capability of the government’s tax management) to induce tax morale in the tax compliance experiment. We aim to find the impact of different formats of income reporting, tax rates of return, and the possibility of corruption on tax compliance under a progressive tax system. Our experimental design extends the tax compliance game with a real-effort game followed by income reporting in a group setting. A random audit is then used to check the declared income and imposing a penalty for the underreported income. We further advance this by introducing a pre-filled form and corruption in the experiment, where both are thought to have opposite impacts to each other. Nevertheless, using university student sample, our results show that both treatments increase the likelihood of tax evasion behaviour; a tendency to underreport the earnings from real-effort games. The impact is severe that the high tax rates of return – as a result of good tax management by the government – cannot persistently minimise this tendency of tax evasion behaviour. We discuss and conclude that enhancing tax compliance encompasses various factors such as trust in authorities, tax morale, tax composition and non-financial incentives; indicating if there is no ‘one size fits all’ intervention for this purpose.

Keywords: tax evasion; tax morale; pre-filled form; corruption; lab experiment (search for similar items in EconPapers)
JEL-codes: C92 D91 H26 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:aiy:jnljtr:v:11:y:2025:i:2:p:434-450

DOI: 10.15826/jtr.2025.11.2.210

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