Tax Evasion Punishment and Observers’ Tax Compliance: An Experimental Investigation

• In Event: Tax Research

Abstract

We experimentally investigate how a tax evader’s successful or unsuccessful conviction influences other taxpayers’ compliance decisions. Using insights from the retributive justice and affective events literatures, we develop and find support for a model which posits a conditional indirect effect of perceptions of responsibility for a fraud on taxpayers’ compliance intentions, through perceptions of punishment deservingness and affective reactions. We also find that the association between punishment deservingness and affective reactions is conditional on punishment actually occurring. Overall, others’ tax compliance intentions significantly increase only when observers perceive that a tax fraud perpetrator is highly responsible for wrongdoing and is punished. These results have implications for tax and other organizational authorities when deciding whether or not to prosecute a fraud perpetrator.

Authors

• Tisha King, Wilfrid Laurier University

• Jonathan Farrar, Wilfrid Laurier University