Tax rates, tax administration and income tax evasion in Switzerland

Abstract

This paper contains an empirical analysis of income tax noncompliance in Switzerland, based on the standard model of tax evasion. Noncompliance is found to be positively related to the marginal tax burden and negatively to the probability of audit, though the latter impact is only weak. There is no evidence of a significant deterrent effect of the penalty tax. The extended model reveals that noncompliance is positively related to inflation. Finally, noncompliance is significantly lower when citizens/taxpayers have direct control over government budgets, whereas the opposite holds when there is no such control.* The paper has benefitted from useful comments by Rodney Beard, Albert Hart, Susanne Krebs, Agnar Sandmo, and participants at various conferences. Werner Pommerehne unexpectedly died of a heart attack on October 8, 1994. With him I lost a most creative teacher, an excellent co-author and a very good friend. This manuscript has been written and revised before his death.

Tax morale in Asian countries

“…On the tax compliance of older people Tittle (1980) argues that they are more sensitive to the threats of sanctions and over the years have acquired greater social stakes, as material goods, status, a stronger dependency on the reactions from others, so that the potential costs of sanction increase. If they have been living for a certain time in the same place they are more attached to the community (see Pommerehne and Weck-Hannemann 1996). Attachment might have a positive effect on tax morale.…”

Measuring the Invisible: An Overview of and Outlook for Tax Non-Compliance Estimates and Measurement Methods for Switzerland

“…Frey (1992, cited in Frey andFeld, 2002) calculated a compliance rate of 82.5 percent for a sample of Swiss cantons. Some years later, Pommerehne and Weck-Hannemann (1996) repeated their comparison of gross household income in NA data with tax data for the years 1965, 1970 and 1978, again without naming any concrete tax noncompliance figures.…”

“…Building on the previous paper by Frey (1992, cited in Frey andFeld, 2002) and Pommerehne and Weck-Hannemann (1996), Frey and Feld (2002) widened the sample by adding the years 1985,1990,1995. The method of comparing national income gross household figures to adjusted household income reported to the tax authorities was maintained and a compliance rate of 76.52 percent was estimated.…”

Economic crisis and morale

“…Income, for example, is positively correlated with benefit morale and negatively with tax morale -a fact which is explainable by a self-serving interpretation of norms (Halla and Schneider 2008). In addition to the micro-characteristics, several country characteristics have been scrutinised, among them decentralization and fiscal autonomy (Torgler and Werner 2005) and direct democracy (Pommerehne and Weck-Hannemann 1996) for tax morale or the size of the welfare state for benefit morale (Heinemann 2008;Halla, Lackner et al 2009). The latter contributions support Assar Lindbeck's concerns that the build-up of the welfare state undermines the very norms on which the welfare state is based (Lindbeck 1995a).…”