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

James Alm (), Kim M. Bloomquist () and Michael McKee
Additional contact information
Kim M. Bloomquist: Taxpayer Advocate Service, U.S. Internal Revenue Service

No 1619, Working Papers from Tulane University, Department of Economics

Abstract: In this paper, we suggest that individuals' tax compliance behaviours are affected by the behaviour of their "neighbours", or those about whom they may have information, whom they may know, or with whom they may interact on a regular basis. Individuals are 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 behaviour. In one treatment setting, we inform individuals about the frequency that their neighbours submit a tax return. In a second treatment setting, we inform them about the number of their neighbours who are audited, together with the penalties that they pay. In both cases, we examine the impact of information on filing behaviour and also on subsequent reporting behaviour. We find that providing information on whether one's neighbours are filing returns and/or reporting income has a statistically significant and economically large impact on individual filing and reporting decisions. However, this "neighbour" information does not always improve compliance, depending on the exact content of the information.

Keywords: Tax evasion; Tax compliance; Behavioural economics; Experimental economics. (search for similar items in EconPapers)
JEL-codes: C91 H26 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-iue, nep-pbe and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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http://repec.tulane.edu/RePEc/pdf/tul1619.pdf First Version, December 2016 (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 Neighbor Pays Taxes: Information, Peer Effects, and Tax Compliance (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:tul:wpaper:1619

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