Why We Cheat? Experimental Evidence on Tax Compliance

Research Interest
Successful redistributive taxation requires that the rich actually pay their taxes. National survey data indicate that the rich typically have much lower tax morale. Is it the case that simply acquiring wealth results in an antipathy towards taxation? This essay suggests a somewhat more nuanced view: individuals who demonstrate high levels of ability or effort, who typically are rich, are much less likely than others to comply with taxation. A causal mechanism contributing to tax cheating appears to be ability as opposed to wealth per se.

There is overwhelming evidence that subjects who perform better on the real effort tasks cheat more – simply performing better, in our experiments, results in greedier behaviour. Experimental treatments were implemented in order to explore alternative causal mechanism. Clearly the price of compliance to redistributive taxation also matters – as the cost of compliance rises we see an increase in cheating.

But the higher levels of cheating by able versus less able types persists in high and low tax regimes. There is no experimental evidence that when earnings are associated with luck or status that this correlation between performance or ability and cheating moderates. And finally efforts to make the experimental treatment regimes much more redistributive had little affect on the intrinsic motivations of those with high ability – the correlation between ability and cheating was similar to the baseline treatments.

Intrinsic motivation for complying with taxation is very asymmetric. Those who exhibit high ability, and hence are more likely to be rich, realise much less intrinsic benefits from complying with taxation than is the case for those with lower ability who are more likely to be poor.