ABSTRACT
Introduction Tax compliance has evolved into a major research topic in economic psychology. The issue has been approached from various viewpoints, shedding light on different aspects of taxpayers’ behavior. Attitudes have been measured, prevailing social norms captured, and those lay theories explored which people have in mind when brooding over their annual tax declarations (for an overview, see Kirchler, 2007). One line of research focuses on judgment and decision processes in tax compliance. In the seminal works of Allingham and Sandmo (1972) and Srinivasan (1973), income tax evasion was modeled as a decision under uncertainty.1 Since then, parameters specified in the formal model have been empirically studied in various publications. This review summarizes results and conclusions of research on tax compliance decisions within the paradigm of maximizing expected utilities. Similar work has been published in the past (see, for example, Alm, 1999; Slemrod and Yitzhaki, 2002). The present chapter catches up with and incorporates the more recent empirical studies. After illustrating the model, each of its parameters is addressed separately, and empirical evidence for or against their effects on tax compliance is reported. Finally, a summary of results is provided, and the typical problems of tax compliance research and alternative theoretical approaches are discussed from the psychologists’ perspective. Allingham and Sandmo’s (1972) and Srinivasan’s (1973) analyses are restricted to income tax evasion. Research dealing with value added tax, other taxes or related duties is therefore omitted in the present review. Most of the cited studies focus on self-employed taxpayers, because this group has the greatest opportunities to evade income taxes.
