When You Know Your Neighbor Pays Taxes: Information, Peer Effects, and Tax Compliance

James Alm (), Kim M. Bloomquist and Michael McKee

No 13-22, Working Papers from Department of Economics, Appalachian State University

Abstract: In this paper, we argue that individuals are affected in their compliance behavior by the behavior of their “neighbors”, or those about whom they may have information, whom they may know, or with whom they may interact on a regular basis. Individuals seem more likely to file and to report their taxes when they believe that other individuals are also filing and reporting their taxes; conversely, when individuals believe that others are cheating on their taxes, they may well become cheaters themselves. We use experimental methods to test the role of such information about peer effects on compliance behavior. In one setting, we inform individuals about the frequency that their neighbors submit a tax return. In a second setting, we inform them about the number of their neighbors who are audited, together with the penalties that they pay. In both cases, we examine the impact of information on filing behavior and also on subsequent reporting behavior. We find that providing information on whether one’s neighbors are filing returns and/or reporting income has a statistically significant and economically large impact on individual filing and reporting decisions. However, this “neighbor” information does not always improve compliance, depending on the exact content of the information. Key Words: Tax evasion; Tax compliance; Behavioral economics; Experimental economics

JEL-codes: C91 H26 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-iue, nep-net, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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http://econ.appstate.edu/RePEc/pdf/wp1322.pdf (application/pdf)

Related works:
Journal Article: When You Know Your Neighbour Pays Taxes: Information, Peer Effects and Tax Compliance (2017)
Working Paper: When You Know Your Neighbour Pays Taxes: Information, Peer Effects, and Tax Compliance (2017)
Working Paper: When You Know Your Neighbour Pays Taxes: Information, Peer Effects, and Tax Compliance (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:apl:wpaper:13-22

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