Information Provision and Tax Compliance of Firms and Individuals

• Applicant: Professorin Dr. Nadja Dwenger
• Subject Area: Economic Policy, Applied Economics
• Term: from 2015 to 2020
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 268734931

The research project (Information Provision and Tax Compliance of Firms and Individuals) aims at a better understanding of tax enforcement. The main focus of the project is on the role of public information for tax compliance of firms and individuals. The submitted research project consists of two sub-projects which both consider two aspects of this overarching research question. It is state of the art to study tax compliance in randomized field experiments and by exploiting natural experiments. Each of the sub-projects makes use of one of these methods. Sub-project A is a randomized field experiment with firms in Finland. Tax authorities in Finland have already agreed to implement the described randomized field experiment. The goal of sub-project A is to understand whether and why firms are more compliant when they declare their taxes on imported goods, if they are informed that there is third-party information: Research question 1: Does the exchange of information between tax authorities in the European Union improve tax compliance of firms? Research question 2: If yes, what are the underlying mechanisms? An increase in the perceived risk of detection conditional on evasion? Or lower administrative costs on the part of firms? While third-party reporting has been found to increase tax compliance of individuals, we do not know whether this also holds true for firms. In addition and for the very first time, sub-project A studies the mechanisms which are underlying the behavioural response. Sub-project B analyses the effects of a naming-and-shaming list on the internet which was introduced by the Slovenian tax administration for taxpayers with outstanding tax debt in 2013. This natural experiment allows us to study whether taxpayer behaviour is driven by the judgment and behaviour of their taxpayer fellows. Research question 3: Do social image concerns and social norms influence tax compliance behaviour of individuals and firms? Research question 4: What are the characteristics of taxpayers who are most prone to react to this type of social incentives? The project leader already signed a cooperation agreement with the Republic of Slovenia, which grants full access to the individual and firm level data required in the project. It has been widely discussed to use public shaming of non-compliance as an instrument of tax enforcement. However, so far the effects of public shaming on tax compliance have never been studied. Sub-project B addresses this question. The results of the research project are relevant beyond the field of public economics. In particular, they are of interest to behavioural economists, psychologists, and sociologists. Further, the results are of major importance for policy makers who need to decide upon how to collect taxes.

• DFG Programme: Research Grants
• International Connection: Finland
• Cooperation Partner: Tuomas Kosonen, Ph.D.