Does the Sole Description of a Tax Authority Affect Tax Evasion? - The Impact of Described Coercive and Legitimate Power

Abstract

Following the classic economic model of tax evasion, taxpayers base their tax decisions on economic determinants, like fine rate and audit probability. Empirical findings on the relationship between economic key determinants and tax evasion are inconsistent and suggest that taxpayers may rather rely on their beliefs about tax authority’s power. Descriptions of the tax authority’s power may affect taxpayers’ beliefs and as such tax evasion. Experiment 1 investigates the impact of fines and beliefs regarding tax authority’s power on tax evasion. Experiments 2-4 are conducted to examine the effect of varying descriptions about a tax authority’s power on participants’ beliefs and respective tax evasion. It is investigated whether tax evasion is influenced by the description of an authority wielding coercive power (Experiment 2), legitimate power (Experiment 3), and coercive and legitimate power combined (Experiment 4). Further, it is examined whether a contrast of the description of power (low to high power; high to low power) impacts tax evasion (Experiments 2-4). Results show that the amount of fine does not impact tax payments, whereas participants’ beliefs regarding tax authority’s power significantly shape compliance decisions. Descriptions of high coercive power as well as high legitimate power affect beliefs about tax authority’s power and positively impact tax honesty. This effect still holds if both qualities of power are applied simultaneously. The contrast of descriptions has little impact on tax evasion. The current study indicates that descriptions of the tax authority, e.g., in information brochures and media reports, have more influence on beliefs and tax payments than information on fine rates. Methodically, these considerations become particularly important when descriptions or vignettes are used besides objective information.

Authorities' Coercive and Legitimate Power: The Impact on Cognitions Underlying Cooperation

“…In line with these aspects, we argue that legitimate power, such as distributing information about what the “morally” desired behavior is and the expertly handling of members' contributions to the communal good, becomes important. Empirical evidence shows that coercive power, as well as legitimate power, has a positive impact on cooperative behavior (e.g., Tyler et al, 2010; Hofmann et al, 2014; Hartl et al, 2015). An interaction effect of coercive and legitimate power on cooperation has not been found (e.g., Hofmann et al, 2014; Hartl et al, 2015).…”

“…Empirical evidence shows that coercive power, as well as legitimate power, has a positive impact on cooperative behavior (e.g., Tyler et al, 2010; Hofmann et al, 2014; Hartl et al, 2015). An interaction effect of coercive and legitimate power on cooperation has not been found (e.g., Hofmann et al, 2014; Hartl et al, 2015). Nevertheless, theoretically we would expect that the combination of coercive power and legitimate power is affecting the cognitions underlying cooperative behavior via perception of power (Gangl et al, 2015).…”

“…Although, results indicate cooperative behavior based on coercive and legitimate power, the underlying cognitions are still unexplored (Hofmann et al, 2014; Hartl et al, 2015). First, empirical evidence indicates that people cooperate voluntarily when legitimate power is high, but only under the condition that rule-breakers can be punished (Kroll et al, 2007).…”

“…Hartl et al (2015) examined the impact of beliefs of coercive and legitimate power on tax behavior and found a significant effect of both on experimental cooperative behavior. However, so far, the underlying and probably mediating cognitions of why people intent to cooperate with authority have not been analyzed.…”

“…Earlier research shows that coercive power and legitimate power both enhance cooperation in public good dilemmas, where individual interests collide with collective ones (Masclet et al, 2003; Tyler, 2006; Van Lange et al, 2013; Hartl et al, 2015). However, the actual underlying cognitions responsible for the increase in cooperation are not well-understood.…”