Tax Evasion

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Sl. Title of the paper/writing
Name of the
Author(s)
Year of
publication
Publisher
1
Tax evasion and emotions: An
empirical test of re-integrative
shaming theory
Giorgio Coricelli, Elena
Rusconi and Marie
Claire Villeval
2012
Journal of Economic
Psychology
2
Enforcing Tax Compliance: To
Punish or Persuade?
Kristina Murphy 2008
Economic Analysis
and Policy, VOL. 38
3
SHAMING, SHAME AND
RECIDIVISM -A Test of
Reintegrative Shaming Theory in
the White-Collar Crime Context
Kristina Murphy and
Nathan Harris
2007
British Journal of
Criminology, VOL-
47, Issue-6
4
Income tax evasion: A theoretical
analysis.
Micheal G. Allingham &
Agnar Sandmo
1972
Journal of Public
Economics, 1. North-
Holland Publishing
Company
5
Reciprocal relationships in tax
compliance decisions
Cécile Bazart and
Aurélie Bonein
2012
Journal of Economic
Psychology
6
Tax evasion, welfare fraud, and
‘‘The Broken Windows’’ effect:
an experiment in Belgium, France
and the Netherlands
Lefebvre, M., Pestieau,
P., Riedl, A., & Villeval,
M.C.
2011
IZA discussion
papers 5609
Institute for the
Study of Labor
(IZA)., Germany
7
Misperceptions of social norms
about tax compliance: From
theory to intervention
Wenzel, M. 2005
Journal of
Economic
Psychology, 26
8
A Model of Tax Evasion with
group Conformity and Social
Customs
Gareth D. Myles and
Robin A. Naylor
1996
European Journal of
Political Economy,
Vol. 12
9
Behavioral dynamics of tax
evasion – A survey
Michael Pickhardt,
Aloys Prinz
2013
Journal of Economic
Psychology
10
Vertical and horizontal
reciprocity in a theory of
taxpayer compliance.
Jan Schnellenbach 2010
Routledge:
Routledge
International
Studies in Money
and Banking.
11
Taxation and public opinion in
Sweden: An interpretation of
recent survey data”
Vogel, J. 1974
National Tax
Journal, 27
12
Understanding taxpaying
behaviour: A conceptual
framework with implications for
research
Smith, K.W. & Kinsey,
K.A.
1987
Law and Society
Review, 21




Summary Result


Coricelli G. , Rusconi E. and Villeval M.C (2012) said in their paper, Shaming can be either of
two types, shaming that becomes stigmatization of the offender and favors his exclusion from the
community, or shaming that is followed by forgiveness and reintegration of the deviant. Here we
test experimentally these aspects of shaming theory with a repeated tax-payment game, in which
the shaming „„ritual‟‟ consisted of displaying the evader‟s picture in addition to charging
monetary sanctions. Results show that when cheating is made public and the contravener is not
successively reintegrated, the total amount of cheating is significantly increased compared to
when cheating is made public but publicity is immediately followed by reintegration. The former
condition is associated with more intense negative emotions related to cheating. This suggests
that the employment of a social shaming mechanism may be an effective, albeit very sensitive,
tool in the hands of policy makers.
Murphy, (2008) and Murphy & Harris (2007) have stated in their paper that in tax law
enforcement, for example, it is well known that deterrence-based enforcement strategies,
especially when perceived as unfair according to self-reports, can cause a paradoxical reaction or
intention of future resistance to compliance and disrespect for the law.
Micheal G. Allingham and Agnar Sandmo (1972) have stated that they have examined some
static and dynamic aspects of the decision to evade income taxes. The model they have used is
clearly rather special, and we can claim no more for it than that it seems to yield some insight
into the structure of the problem. They also have expected that the approach will suggest other
topics for research in the field, both theoretical and empirical.
Of theoretical topics the ones which immediately suggest themselves are perhaps various
generalizations of the present model. One possibility is to extend the model to take account of
labor supply decisions; one might hope to discover some interesting connections between
incentives to avoid taxes and to supply work effort. However, although they have studied this
case, they have not been able to come up with any interesting and reasonably simple results.
Another possible extension would be to incorporate saving and portfolio decisions. It might also
be worthwhile to analyze more complicated income tax schemes than the simple proportional
case which we have examined.

C. Bazart, A. Bonein (2012) have explained that reciprocity considerations are important to the
tax compliance problem as they may explain the global dynamics of tax evasion, beyond
individual tax evasion decisions, toward a downward or upward spiral. To provide evidence on
reciprocity in tax compliance decisions, they have conducted a laboratory experiment in which
we introduced two types of inequities. The first type of inequity is called vertical, because it
refers to inequities introduced by the government when it sets different fiscal parameters for
identical taxpayers, while the second type of inequity is called horizontal because it refers to the
fact that taxpayers may differ in tax compliance decisions. In this setting, taxpayers may react to
a disadvantageous or advantageous inequity through negative or positive reciprocal behaviors,
respectively. Their results support the existence of negative and positive reciprocity in both
vertical and horizontal cases. When both inequities come into play and may induce reciprocal
behaviors in opposite directions, the horizontal always dominates the vertical.

In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the
Netherlands, Lefebvre, M., Pestieau, P., Riedl, A., & Villeval, M.C. (2011) compared behavior
regarding tax evasion and welfare dodging, with and without information about others‟ behavior.
Subjects have to decide between a „registered‟ income, the realization of which will be known to
the tax authority for sure, and an „unregistered‟ income that will only be known with some
probability. This unregistered income comes from self-employment in the Tax treatment and
from black labor supplementing some unemployment compensation in the Welfare treatment.
Subjects have then to decide on whether reporting their income or not, knowing the risk of
detection. The results show that (i) individuals evade more in the Welfare treatment than in the
Tax treatment; (ii) many subjects choose an option that allows for tax evasion or welfare fraud
but report their income honestly anyway; (iii) examples of low compliance tend to increase tax
evasion while examples of high compliance exert no influence; (iv) tax evasion is more frequent
in France and the Netherlands; Walloons evade taxes less than the Flemish. There is no cross-
country difference in welfare dodging.
Wenzel (2005) showed that taxpayers estimate other‟s acceptance of tax evasion as being greater
than their own and decrease their compliance level to conform to their misperception of social
norm.
Myles and Naylor (1996) as we assumed that the dynamics of tax evasion is fueled by social
interactions and that taxpayers shift from honesty to evasion upon crossing a given threshold.
This threshold is assumed to vary and depends on the sensitivity of taxpayers to the unfairness.

In their paper Michael Pickhardt and Aloys Prinz (2013) have said since the 1950s it is well
known that behavioral aspects have an influence on tax evasion or tax compliance. In particular,
interactions among the various entities involved in the taxation process (e.g. taxpayers, law
makers, tax practitioners, tax authorities, etc.), and the dynamics that these interactions may
generate, seem to play an important role for the actual level of tax compliance. However, the
mainstream neoclassical approach to tax evasion cannot account for such interactions and
dynamics. Therefore, during the last two decades new approaches (e.g. lab experiments, agent-
based modeling, etc.) have been developed with a view to model how behavioral dynamics may
foster or prevent tax evasion. In this paper, the focus is on the behavioral dynamics of tax
evasion and compliance. From the viewpoint of the integrative model of tax evasion and
compliance provided research on all elements is found in the papers reviewed here. A crucial
lesson is as follows: Although personal traits of taxpayers are more or less unchangeable,
personal and social norms as well as rationalizations can be influenced by interactions with
others. For instance, if tax evasion becomes a widely spread phenomenon, it will be difficult to
enforce tax laws. This means that interactions between taxpayers, taxpayers and tax authorities
as well as taxpayers and tax practitioners are crucial for the dynamics of personal attitudes,
norms and rationalizations.

Schnellenbach (2010) stated that the heterogeneity of taxpayers‟ type in the population, the
intuitive role of guilt in the tax evasion decision, and the potential rationalization and
neutralization of these feelings of guilt when tax evasion is seen as a widespread practice among
citizens.

Vogel‟s study (1974) is important in this field. It distinguishes between internalization,
identification and compliance, and specifies three objective factors that help determine evasion,
namely the individual exchange relationship with the government, social orientation and
opportunities for evasion. These factors are found to have both direct and indirect effects on tax
attitudes and evasion. This study is thus an important early attempt to focus on the moral
dimension of taxpayer behavior and to deal with individual differences in this behavior.

Smith and Kinsey (1987) describe a conceptual framework for understanding taxpayer behavior.
They distinguish between the process and content of decision-making, and emphasize that people
do not take a single decision to evade tax. Evasion involves a series of actions, such as
deliberately „forgetting‟ to submit tax returns or mentally redefining some earnings as non-
taxable. These actions form a process which moves people from their habitual compliant
response to a conscious decision to evade tax or cheat. During this process, people who choose to
cheat tend to weigh certain specific factors such as material consequences, normative
expectations, socio-legal attitudes and expressive factors.











Reference
Allingham, M., & Sandmo, A. (1972). Income tax evasion: A theoretical analysis. Journal of
Public Economics, 1
C. Bazart, A. Bonein (2012), Reciprocal relationships in tax compliance decisions, Journal of
Economic Psychology
Coricelli G., Rusconi E. and Villeval M.C. (2012), Tax evasion and emotions: An empirical test
of re-integrative shaming theory, Journal of Economic Psychology
Lefebvre, M., Pestieau, P., Riedl, A., & Villeval, M.C. (2011). Tax evasion, welfare fraud, and
„„The Broken Windows‟‟ effect: an experiment in Belgium, France and the Netherlands. IZA
discussion papers 5609 Institute for the Study of Labor (IZA).
Pickhardt M. & Prinz A. (2013) Behavioral dynamics of tax evasion – A survey, Journal of
Economic Psychology
Murphy, K., & Harris, N. (2007). Shaming, shame and recidivism. A test of reintegrative
shaming theory in the white-collar crime context. British Journal of Criminology, 47
Murphy, K. (2008). Enforcing tax compliance: To punish or to persuade? Economic Analysis
and Policy, 38
Myles, G. D., & Naylor, R. A. (1996). A model of tax evasion with group conformity and social
customs. European Journal of Political Economy, 12
Smith, K.W. & Kinsey, K.A. (1987) “Understanding taxpaying behaviour: A conceptual
framework with implications for research”, Law and Society Review, 21
Schnellenbach, J. (2010), “Vertical and horizontal reciprocity in a theory of taxpayer
compliance”, in Alm, J., Martinez-Vazquez, J. and Torgler, B. (Eds.), Developing Alternative
Frameworks for Explaining Tax Compliance, Routledge, London and New York
Vogel, J. (1974) “Taxation and public opinion in Sweden: An interpretation of recent survey
data”, National Tax Journal, 27
Wenzel, M. (2005). Misperceptions of social norms about tax compliance: From theory to
intervention. Journal of Economic Psychology, 26

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