nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒07‒02
one paper chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. When the State Doesn't Play Dice: An Experimental Analysis of Cunning Fiscal Policies and Tax Compliance By Luigi Mittone; Matteo Ploner; Eugenio Verrina

  1. By: Luigi Mittone; Matteo Ploner; Eugenio Verrina
    Abstract: We provide a test of the effect of aggressive fiscal policies on tax com- pliance in the lab. Our experimental setup allows tax agents to break a deontological rule concerning the implementation of audits on a group of tax payers. In one incentive condition, tax agents have a direct monetary benefit from higher compliance; in another, they have none. Tax payers, on the other hand, go through a phase of stringent controls under their tax agents and one where audit probabilities are fixed and implemented by a random device. We find that tax agents bend the rules to their advantage. Many either perform very frequent audits or place them in a strategic way, thus enforcing a norm of high compliance. Those following the rules have no success. Surprisingly, this is true for both incentive conditions. Tax payers exposed to these audit strategies display nearly full compliance and con- tinue to do so also when tax agents are inactive. We conclude that cunning fiscal policies can effectively be used by tax authorities, if it is transparent that they lead to higher overall compliance. This establishes a virtuous norm that can have positive spillovers even in domains where the state has less coercive power.
    Keywords: Tax evasion, die under the cup, taxpaying strategies, audit strategies, endogenous audits; Tax evasion, die under the cup, taxpaying strategies, audit strategies, endogenous audits
    JEL: C91 C92 H24 H26 H83
    Date: 2017

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