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Exposure to tax dilemmas deteriorate individuals' self-declared tax morale

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Abstract

This study reports on the impact of exposure to tax dilemmas on tax morale. We focus on young adults in their “impressionable years” and with little or no previous tax exposure in order to estimate the impact of actual (albeit experimental) exposure to tax dilemmas on their self-declared tax morale. First, we ascertain the participants’ (N = 385), representation and attitudes towards tax, and second, we observe the impact of facing tax decisions on their present and future level of tax compliance. This allows us to investigate, in the realm of taxation, the generic question of knowing how one’s history (and one’s decisions) influences one’s ethical representations and attitude. Although of less external validity than studies using naturally occurring events or historical periods, the use of an experimental simulation enables us to investigate the three different dimensions that could shape people’s personal history: acting, experiencing and observing. Thanks to an interactive and systemic approach, participants are invited to make decisions in a tax context, to experience tax “events” and are given the opportunity to observe both their own behavior, that of others as well as the consequences of those actions, and repeat and test those three different steps several times. We find that the simulation tends to reduce honesty and ethical concerns with respect to taxation, a decrease in tax morale. This reduction seems to be driven by those subjects who were actually facing a tax dilemma and have to make a compliance decision. Other subjects, only observing or experiencing the effects of low tax compliance, are only marginally affected. One possible interpretation is that individuals have an initial overconfidence in their propensity to tax compliance and tax morale, which is challenged by their own decisions in typical dilemmas.

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Notes

  1. We use the first three rounds, and not just the first one, to make sure that participants become familiar with the environment, their roles, and the consequences of their actions within the game.

  2. Rather than seeing this as a weakness, we think it is reassuring not to obtain a statistically large effect, which would indicate an experimental demand effect: it seems unreasonable to have individuals’ tax morale be strongly affected by a one-hour experimental simulation.

  3. Appendix d also provides the same figures but for the TAX questions. The analysis and interpretation are similar.

  4. In particular, except for minimal secondary aspects, it is notoriously difficult in France to cheat on income tax if you are an employee,as employers declare wages and salaries directly to the tax authorities.

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Acknowledgements

The authors would like to thank Prof E Kirchler, Prof J. Alm and Prof L Mittone for the insightful and valuable comments and questions made at the 6th Shadow Economy Conference–Tax Evasion and Economic Inequality held at the Department of Economics and Management at the University of Trento (Italy), July 11–13, 2019.

Funding

Funding and technical assistance for this research was received from the ANR PIA 16-DUNE-0004 project Ephemer (Ethique et Pédagogie Holoptique pour un EnseigneMEnt en Réseau).

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Authors and Affiliations

  1. EDHEC Business School, 24 avenue Gustave Delory, CS 50411, 59057, Roubaix Cedex 1, France

    Emmanuelle Deglaire & Peter Daly

  2. University of Lille, 60bis, rue du Port, 59000, Lille, France

    Fabrice Le Lec

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  1. Emmanuelle Deglaire
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Correspondence to Emmanuelle Deglaire.

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Appendices

Appendix

Appendix A. Pre- and Post-Questionnaires

2.1 Pre-Questionnaire (translated from french)

Please insert your student number here:

2.2 PART 1: Ten-Item Personality Inventory (TIPI)

2.2.1 Please answer the questions below:

 

Totally disagree

Disagree

Disagree somewhat

Indifferent

Agree somewhat

Agree

Totally agree

I see myself as: extraverted; enthusiastic

       

I see myself as: critical, quarrelsome

       

I see myself as: Dependable, self-disciplined

       

I see myself as: Anxious, easily upset

       

I see myself as open to new experiences, complex

       

I see myself as: Reserved, quiet

       

I see myself as: sympathetic, warm

       

I see myself as: disorganised, careless

       

I see myself as: Calm, emotionally stable

       

I see myself as: Conventional, uncreative

       

2.3 PART 2a: Questions on civic duties (WVS)

For the following conducts, please indicate whether it appears to you always justified, never justified, or something in between, on a scale from 1 to 10, 1 meaning never justified while 10 means always justified.

2.4 Question 1

Claiming government benefits to which you are not entitled.1 2 3 4 5 7 8 9 10.

2.5 Question 2

Avoiding a fare on public transport.1 2 3 4 5 7 8 9 10.

2.6 Question 3

Stealing property.1 2 3 4 5 7 8 9 10.

2.7 Question 4

Cheating on taxes if you have a chance.1 2 3 4 5 7 8 9 10.

2.8 Question 5

Someone accepting a bribe in the course of their duties.1 2 3 4 5 7 8 9 10.

2.9 PART 2b: Questions on Taxation

In a scale from 1 (strongly disagree) to 5 (totally agree) please answer the following questions:

2.10 Question 1

Most people do not cheat on their taxes 1 2 3 4 5.

2.11 Question 2

I prefer to work for a company that pays its taxes in France rather than in a tax haven1 2 3 4 5.

2.12 Question 3

In the future, I will declare my income tax honestly. 1 2 3 4 5

2.13 Question 4

It is justified to cheat on taxes if the opportunity arises. 1 2 3 4 5

2.14 Question 5

Tax flight is unfair towards other taxpayers 1 2 3 4 5.

2.15 Post-Questionnaire

2.15.1 PART 2a: Questions on civic duties (WVS)

For the following conducts, please indicate whether it appears to you always justified, never justified, or something in between, on a scale from 1 to 10, 1 meaning never justified while 10 means always justified.

2.16 Question 1

To receive social benefits you are not allowed to.1 2 3 4 5 7 8 9 10.

2.17 Question 2

To free-ride public transportation.1 2 3 4 5 7 8 9 10.

2.18 Question 3

Theft.1 2 3 4 5 7 8 9 10.

2.19 Question 4

To cheat tax if the opportunity arises.1 2 3 4 5 7 8 9 10.

2.20 Question 5

To accept bribes on the job.1 2 3 4 5 7 8 9 10.

2.21 PART 2b: Questions on Taxation

In a scale from 1 (strongly disagree) to 5 (totally agree) please answer the following questions:

2.22 Question 1

Most people do not cheat on their taxes 1 2 3 4 5.

2.23 Question 2

I prefer to work for a company that pays its taxes in France rather than in a tax haven1 2 3 4 5.

2.24 Question 3

In the future, I will declare my income tax honestly. 1 2 3 4 5

2.25 Question 4

It is justified to cheat taxes if the opportunity arises 1 2 3 4 5.

2.26 Question 5

Tax flight is unfair towards other taxpayers 1 2 3 4 5.

Appendix B: Principal Component Analysis

To get an overall vision of the changes induced by the tax simulation, we ran a Principal Component Analysis on the five questions. Usual diagnostics suggest keeping two components for analysis (when applying a threshold for the eigenvalue of 1 or more). Two components account for around 65% of the variance, and three 80%.

The typical variable factor maps help interpreting the PC: the y-axis corresponds to the empirical norm, meaning the proportion of individuals being honest with respect to taxes (Question 1 of the questionnaire almost exclusively), while the x-axis seems to correspond to the individual attitude of the respondent.

See Figs. 

Fig. 2
figure 2

Amount of explained variance by factors

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2 and

Fig. 3
figure 3

Representation of variables with respect to factors (“Dim”)

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3

3.1 C – Validity of the 5-item questionnaire

A standard reliability analysis shows (see Table below), we obtain a satisfactory level of validity when dropping the first question. This is in line with our intuition that Question 1 measured something different. It is also fully consistent with the results obtained in the Principle Component Analysis (PCA).

See Table

Table 11 Validity measures
Full size table

11

3.2 D—Additional statistical analyses

See Table

Table 12 Effects of the simulation by role for the different TAX questions
Full size table

12

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Deglaire, E., Daly, P. & Le Lec, F. Exposure to tax dilemmas deteriorate individuals' self-declared tax morale. Econ Gov 22, 363–397 (2021). https://doi.org/10.1007/s10101-021-00262-x

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