The Impact of Tax Knowledge and Budget Spending Influence on Tax Compliance

Behnud Mir Djawadi () and René Fahr ()
Additional contact information
Behnud Mir Djawadi: University of Paderborn

No 7255, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We investigate the impact of trust in authorities on tax compliance within a controlled laboratory setting. Embedded in two hypothetical tax systems with high and low power of authorities respectively, we gradually increase trust in authorities in form of tax knowledge about public expenditures and by allowing taxpayers to decide on what public goods they want their tax dollars to be spend for. To clearly disentangle any effects from factors that are known to influence tax compliance from previous studies, we control for tax commitment, risk attitude, income and effort exerted to earn the income which the taxpayers report truthfully or underreport to the tax authority. Non-parametric statistical analyses as well as multivariate regressions provide clear evidence that tax compliance is higher in tax systems with low power of authorities when providing complete transparency on public expenditures and when taxpayers are given the possibility to decide on the use of their taxes. With a powerful tax authority in place which is reflected in high audit rates, compliance does not change when increasing trust in authorities. Our results have important policy implications as the mere hypothetical possibility to express preferences on budget spending influences tax compliance.

Keywords: tax evasion; tax compliance; tax knowledge; budget spending; real effort; experimental economics (search for similar items in EconPapers)
JEL-codes: C91 H26 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2013-02
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue, nep-knm, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://docs.iza.org/dp7255.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp7255

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().