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The ghost of institutions past: History as an obstacle to fighting tax evasion?

Aaron Kamm, Christian Koch and Nikos Nikiforakis

European Economic Review, 2021, vol. 132, issue C

Abstract: Can a history of evasion affect tax compliance after a major institutional reform? We address this question in a novel laboratory experiment varying the quality of past and present institutions. We find that past institutions continue to exert considerable influence on individuals’ expectations about others’ compliance even after a major, common-knowledge institutional change. Consequently, we observe low compliance in good-quality institutions when there is a history of evasion, but high compliance when there is no such history. These findings suggest that history should not be ignored as it is in traditional models of compliance: the higher evasion has been historically, the stronger incentives may need to be to overcome the “ghost of institutions past”. We show that a society-wide poll in which individuals express their attitudes toward compliance can help break the link with the past.

Keywords: Tax evasion; Interdependence; Multiple equilibria; Path dependence; Experiment (search for similar items in EconPapers)
JEL-codes: C92 H26 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.euroecorev.2020.103641

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