Government Spending: How it Impacts Tax Compliance

• In Event: Behavioral Tax Research

Abstract

This study examines how taxpayer level of goal congruency (support for a government program) can improve tax compliance. While there is ample evidence on the deterrent effect of audit probability on taxpayer noncompliance, there is no evidence related to the potential role that goal congruency (i.e., when a taxpayer’s interests align with the interests of the tax collecting agency) may have on compliance behavior. Results of our study indicate that goal congruency influences taxpayer compliance decisions, in that those with higher goal congruency (i.e., greater support for how tax dollars are spent) report higher amounts of taxable income. In addition, we find that audit probability only influences taxpayer compliance decisions when there is support for the government’s use of tax dollars. When taxpayers do not support government programs, their compliance is lower regardless of the audit probability. This highlights the importance of gaining taxpayer support for government programs and that attempts to align the goals of taxpayers with those of the government may increase voluntary compliance among taxpayers. We also examine the role that Machiavellianism, a measure of moral obligation, plays in taxpayers’ compliance decisions. We find that for certain individuals who are motivated more by self-interest (those with high Machiavellianism), a high audit rate as well as support for a program may be necessary to improve compliance behavior. Theoretical and practical implications of these findings are discussed.

Authors

• Diana Falsetta, University of Miami

• Jennifer B. Schafer, Kennesaw State University

• George Theodore Tsakumis, University of Delaware