ABSTRACT
Introduction Adams’ book (1993) begins with the inscription over the entrance to the Internal Revenue Service building: “Taxes are what we pay for a civilized society”. An essential question for policy makers is the extent to which individuals are willing to pay this price, given that the probability of being audited by the tax administration is rather low. Allingham and Sandmo’s (1972) groundbreaking model assumes that the extent of tax evasion is negatively correlated with both the probability of detection and the degree of punishment, and has since been widely criticized (see, for example, Alm et al., 1992; Graetz and Wilde, 1985). Elffers (2000: 185) points out that “the gloomy picture of massive tax evasion is a phantom”. A large share of revenues is collected without a draconian enforcement system. In many countries, the level of deterrence is too low to explain the high degree of tax compliance. Moreover, cooperation in tax compliance experiments is higher than neoclassical models would predict even after controlling for risk attitudes. Thus, the tax compliance literature has shown the necessity of going beyond the neoclassical approach when trying to understand why citizens pay taxes. What are the reasons behind this puzzle of tax compliance? The literature in the last couple of years has stressed that the social norm of compliance or tax morale may help to explain why people willingly conform. An increasing number of studies have therefore explored which factors shape tax morale in an attempt to gain a broader understanding of this issue. However, there is still a lack of empirical evidence on the link between attitudes and behavior in the tax compliance literature. It is important to address this deficiency because the state and the tax administration have a variety of methods available to influence tax compliance, and traditional approaches such as deterrence can be seen as just one possible instrument. Thus, knowledge about the causes and consequences of tax morale could lead to a better tax policy. In the first part of the chapter we explore the impact of tax morale on tax evasion or tax compliance using survey, laboratory experimental, and field data. We then take the research a step further and explore the determinants of tax morale, with a particular focus on whether governance and institutions matter.
