ABSTRACT
Introduction Not too long ago, Cullis and Lewis (1997: 309) stated, with regard to the ana lysis of tax evasion, that the “economic approach has obvious analytic appeal but lacks realism and humanity.” A lot has changed since then in theoretical research, while in empirical research contributions as early as that of Spicer and Becker (1980) have argued for the relevance of fairness considerations in explaining actual tax evading behavior. In a similar spirit, Maital (1982) has argued that high levels of tax compliance can be explained by the wish of indi viduals to support policies that are in concurrence with their preferences. Later, Frey (1997) extended such arguments to the hypothesis that individuals are endowed with civic virtues. These supposedly render cooperation with govern ment, and in collective action in general, the default behavior. If this is indeed the case, then not only are the surprisingly high levels of tax compliance a theo retical puzzle, but it is defection that needs to be explained theoretically. Frey argues that civic virtues can be crowded out if the government violates norms of procedural fairness, or if it conducts policies that are perceived as being funda mentally unfair. In this way, reciprocity in the form of vertical reciprocity – i.e., in the rela tionship between the individual and the public sector – enters the theoretical rea soning on tax compliance. Gouldner (1960) has argued that reciprocity is a ubiquitous characteristic of human interaction across cultural boundaries. The basic norm to which, according to Gouldner, individuals tend to adhere is that we ought to cooperate with those who cooperate with us. In the economics liter ature, which we discuss in detail below, there is widespread belief that there is also a complementary norm at work, which states that those who do not behave cooperatively, and who do so in a harmful way, ought to be punished. Reciprocal behavior may, however, not only occur in the relationship between taxpayers and their government; it may also play a role as horizontal reciprocity among taxpayers, where one individual’s cooperation in paying taxes increases if he or she has reason to believe that the other taxpayers also comply. In this chapter, we attempt to show how both types of reciprocity enter the decision making calculus of a rational taxpayer. Furthermore, we probe into the inter
action of both types of reciprocity, and in particular argue that a taxpayer’s ability to retaliate against a non cooperative government depends crucially on the individual being endowed with a feeling of guilt related to the activity of tax evasion. In the next section, we review the literature on reciprocity and hint at some connections to the tax compliance problem. Both types of reciprocity in tax evasion are then discussed separately in the following section, while the sub sequent section discusses the interaction of both. Finally, there are some conclusions.
