Social norms and tax compliance: Framing the decision to pay tax

Observed levels of tax compliance are higher than predicted levels (when predictions are based on Allingham and Sandmo's neoclassical model of tax evasion). They are higher if social norms recognise the importance of compliance. But how do social norms frame decisions to pay tax? Can prospect t...

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Bibliographic Details
Published in:The Journal of socio-economics 2012-04, Vol.41 (2), p.159-168
Main Authors: Cullis, John, Jones, Philip, Savoia, Antonio
Format: Article
Language:English
Subjects:
Compliance
Decision making
Decisions
Economic models
Income
Italy
National identity: education
Prospect theory
Research Responses
Social norms
Social structure
Studies
Taxation
Taxes
United Kingdom
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Summary:Observed levels of tax compliance are higher than predicted levels (when predictions are based on Allingham and Sandmo's neoclassical model of tax evasion). They are higher if social norms recognise the importance of compliance. But how do social norms frame decisions to pay tax? Can prospect theory be applied to shed insight into the way that social norms exert their influence? An analysis of questionnaire responses (from Italy and from the UK) suggests that they exert their influence by changing the reference points that individuals use when they code changes as ‘gains’, or ‘losses’. The evidence suggests that social norms frame the decision to pay tax by changing individuals’ perceptions of their entitlement to income. This consideration is important when designing policy to deter evasion.
ISSN:1053-5357
2214-8043
1879-1239
2214-8051
DOI:10.1016/j.socec.2011.12.003