Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation

Lars Feld and Bruno Frey

No 287, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: In this paper, we develop the concept of a psychological tax contract that goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. Based on crowding theory, the impact of deterrence and rewards on tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the state increases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.

Keywords: Tax Compliance; Positive and Negative Incentives; Responsive Regulation (search for similar items in EconPapers)
JEL-codes: D73 D78 H26 H73 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-cbe, nep-pbe and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:287

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