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Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation


Feld, Lars P; Frey, Bruno S (2006). Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation. Working paper series / Institute for Empirical Research in Economics No. 287, University of Zurich.

Abstract

In this paper, we develop the concept of a psychological tax contract that goes beyond thentraditional deterrence model and explains tax morale as a complicated interaction betweenntaxpayers and the government. Based on crowding theory, the impact of deterrence and rewardsnon tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the statenincreases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.

Abstract

In this paper, we develop the concept of a psychological tax contract that goes beyond thentraditional deterrence model and explains tax morale as a complicated interaction betweenntaxpayers and the government. Based on crowding theory, the impact of deterrence and rewardsnon tax morale is discussed. As a contractual relationship implies duties and rights for each contract partner, sticking to the fiscal exchange paradigm between citizens and the statenincreases tax compliance. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to their tax payments as long as the political process is perceived to be fair and legitimate. At the procedural level, a friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Institute for Empirical Research in Economics (former)
Dewey Decimal Classification:330 Economics
Language:English
Date:April 2006
Deposited On:29 Nov 2011 22:47
Last Modified:07 Dec 2017 10:13
Series Name:Working paper series / Institute for Empirical Research in Economics
ISSN:1424-0459
Official URL:http://www.econ.uzh.ch/wp.html

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