Abstract
The purpose of this study is to explore with more rigor and detail the role of social norms in tax compliance. This study draws on Cialdini and Trost’s (The Handbook of Social Psychology: Oxford University Press, Boston, MA, 1998) taxonomy of social norms to investigate with more specificity this potentially decisive (Alm and McKee, Managerial and Decision Economics, 19:259–275, 1998) influence on tax compliance. We test our research hypotheses regarding the direct and indirect influences of social norms using a hypothetical compliance scenario with 174 experienced taxpayers as participants. Factor analysis of the social norm questions successfully identified four distinct social norm constructs, in line with Cialdini and Trost (1998). Results of the path analysis show that individuals’ standards for behavior/ethical beliefs (personal norms) as well as the expectations of close others (subjective norms) directly influence tax compliance decisions, whereas general societal expectations (injunctive norms) and other individuals’ actual behavior (descriptive norms) have an indirect influence. This shows that social norms have important direct as well as indirect influences on tax compliance behavior. We also investigate a number of attitudinal variables that may be related to social norms and taxpayer compliance. The results of this study further clarify the important role that social norms have with regard to taxpayers’ compliance behavior.
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Notes
Other researchers have described social norms in a variety of similar ways. For example, Hechter and Opp (2001) refer to two types of definitions of social norms; oughtness norms or norms that entail moral imperatives and behavioral regularities which are less restrictive and are based on what is observed. From this perspective, injunctive, subjective, and personal norms would all be viewed as oughtness norms. Descriptive norms, on the other hand, are what is observed: the behavioral regularity. Furthermore, Plant and Devine (1998) refer to internal and external motivations to engage in behavior. They refer to internal motivations as personal standards of behavior or how one personally believes they should respond—a concept very similar to Cialdini and Trost’s (1998) personal norm construct. External motivations on the other hand are the community’s “standards or guidelines” (p. 819) for proper behavior. This concept is similar to Cialdini and Trost’s (1998) injunctive norm construct. In this article, we choose to rely on Cialdini and Trost’s (1998) taxonomy due to its comprehensive nature.
Bobek et al. (2011) provide details regarding the scale development of the social norm constructs and test other methodological issues. They do not test hypotheses regarding social norms.
In fact, Nina Olson, the National Taxpayer Advocate in the US, in remarks made at the American Taxation Association Midyear Meeting on March 4, 2011, indicated that her office is currently considering an educational tour throughout the country in an effort to improve voluntary compliance.
Personal norms are another term for personal ethical beliefs/moral obligation, etc. There has been much prior research that has investigated taxpayer ethics related to tax compliance (e.g., Reckers et al. 1994; Kaplan et al. 1997; Henderson and Kaplan 2005). In this study, we do not discuss or consider the underlying ethical theories that relate to individuals’ ethical judgments, as this is not our focus. We are keenly interested in how social norms (including personal norms) affect taxpayer compliance because we believe that, while it may be difficult to change someone’s ethical orientation or level of moral development, researchers and policymakers may have an opportunity to influence compliance through social norms.
For example, Schultz et al. (2007) report that focusing attention on descriptive norms (i.e., what others do) regarding average energy usage, may actually increase energy usage of those with below average usage. They show that adding a message focused on social approval/disapproval (i.e., injunctive norm) eliminates this effect.
Cheap talk refers to the ability of subjects to informally discuss specific aspects of the experiment. It should be noted that most experimental economics studies use neutral terminology. For example, instead of words like “tax” and “audit” they use terms like “fee” and “check” (Alm et al. 1999). Thus, any effect from a social norm construct arises from the experimental setting and not due to the subjects tapping into their own social norms of tax compliance.
Two instructors of an introductory accounting course at a large southeastern university in the spring and summer of 2008 offered extra credit to their students for providing the names, mailing address, and email addresses of eligible participants that had expressed an interest in participating in the study. Each student could provide no more than two names and if more than one name was provided the individuals were required to be from different households. We emphasized that the responses were confidential, and that the participants would never be associated with the study or have individual responses reported. The extra credit points awarded to students were tied to their identification of eligible participants, rather than to participants’ actual completion of the study.
A copy of the questionnaire can be made available by contacting the authors.
By comparison, participants viewed that “Larry” (the hypothetical taxpayer in the scenario) would be slightly unlikely to comply (mean of 3.29), as would the average taxpayer (mean 3.03). Thus, participants were significantly more likely to believe that they would be more compliant than would other taxpayers (p < .001). Furthermore, 47 % of participants indicated that it was “very unlikely” that they would take the additional deduction, indicating that the remaining half of participants might not be completely compliant.
While the overall model χ2 statistic is statistically significant, the ratio of the χ2 statistic to the degrees of freedom is 1.82, less than the recommended 2.0 ceiling. The model’s comparative fit index (CFI) of .964 exceeds the recommended cut-off of .90, and the root mean square error of approximation (RMSEA) of 0.069 is below the recommended threshold of .08.
Supplemental tests indicate that descriptive norms were not more influential for taxpayers with less familiarity with taking business deductions for automobile expenses. However, descriptive norms were less (more) influential for older (younger) taxpayers, providing some evidence that descriptive norms are more likely to be referenced in novel situations.
In supplemental analysis, we consider taxpayers’ perceptions of the likelihood of compliance of Larry (the hypothetical actor in the scenario) and the average taxpayer. These alternative path analysis models produce similar results, with the exception of several factors. First, personal norms and taxpayers’ perceived detection risk have no influence on Larry or the average taxpayer’s perceived compliance. Second, descriptive norms directly influence Larry and the average taxpayer’s perceived compliance, while injunctive norms also directly influence the perceived tax compliance of the average taxpayer. These results suggest that, not surprisingly, personal norms only directly influence one’s own actions, whereas descriptive norms have a stronger influence on what people think that other people would do in a situation. These findings provide additional construct validity regarding the study’s social norm variables. Theoretically, personal norms should only be related to one’s own behavior, while descriptive and injunctive norms directly relate to what one thinks the average taxpayer will do.
Overclaiming is a measure of social desirability bias that assesses participants’ propensity to claim knowledge of false items. We used the 10-item overclaiming scale developed by Randall and Fernandes (1991), in which participants indicated their familiarity with 25 items (such as music, movies, etc.)—with 15 real items and 10 fake items. The overclaiming scale only includes responses to the 10 fake items. While participants displayed some degree of overclaiming (knowledge of the fake items), inclusion of the overclaiming scale did not change any of the reported results. Thus, results did not appear to suffer from social desirability bias. For more details see Bobek et al. (2011).
There is also a significant difference (p < .001) between genders in audit rate perceptions. Male participants on average believed the audit rate is around 12 %, while female participants thought it was more than twice that much at almost 25 %.
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Acknowledgments
We thank participants at the 2010 AAA Annual Meeting, 2010 ABO Research Conference and workshop participants at the University of Central Florida and Kansas State University for their helpful comments. We are also very grateful for the helpful feedback from Robin Roberts, Michael Roberts (discussant at the AAA Annual Meeting), Alisa Brink (discussant at the ABO Research Conference), Tanya Benford and two anonymous reviewers; and for the assistance of Jillian Phillips and Marcye Hampton in the collection of the experimental data.
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Appendix
Appendix
Text of Experimental Scenario
Larry Brown is a 40-year-old married father of two boys. He has his own small business and his wife, Laura, works part-time. In addition to working in his business, he is the coach for his son’s Little League baseball team.
Larry prepares his own income tax return. Larry uses his personal automobile for both business and personal reasons. The tax laws provide that automobile expenses are deductible to the extent the automobile is used for business. In preparing his income tax return, Larry determines that the automobile was used 60 % for business. However, Larry also calculates if he FALSELY claimed it was used 80 % for business, his deduction would increase by $2,000, and he would save $500 in taxes.
Measurement of Individual and Attitudinal Control Variables
Perceived probability of detection was measured with several different items. Two of the responses were on a 7-point Likert scale with 1 = very unlikely and 7 = very likely. The items were: “If you claimed the ADDITIONAL $2,000 deduction in automobile expenses, how likely do you think it would be that you would be audited by the IRS?”(mean response of 3.91), and “If you claimed the ADDITIONAL $2,000 deduction and were audited by the IRS, how likely is it the deduction would be disallowed?” (mean response of 5.30). We also measured participants’ perceptions of the percentage of taxpayers who “DO FUDGE on their taxes” that are caught by the IRS; this item was measured on an 11-point scale ranging from 0 % (1) to 100 % (11) (average response of 3.58 out of 11, corresponding to ~25 %). Finally, we also measured participants’ perceptions of the percentage chance that their most recent federal income tax return would be audited (average response of 14 %) and their perceptions of the percentage of all returns audited annually (average response of 19 %).
Including all items on a scale together did not result in a sufficient level of scale reliability (Cronbach’s alpha of 0.388). Factor analysis indicated two distinct constructs: the general probability of being audited, and whether participants would be able to “get away” with cheating (disallowance). As “overall audit rate” and “perceived likelihood of disallowance” had the highest item loadings on the rotated factors, these variables were retained for additional analysis.
Risk aversion was measured on an 11-point Likert scale as, “If you want to claim a deduction, but the tax law is unclear, how CERTAIN (as a percentage) would you want to be that the IRS would allow the deduction before you would deduct it?” with 1 = 0 % and 11 = 100 % (mean response of 7.95).
Inclusive identification (sense of pride in the American community) was measured with two items; each item used a 7-point Likert scale with 1 = do not agree at all and 7 = agree completely: “Being a member of the American community is important to me” (mean response of 6.56) and “I feel a sense of pride in being a member of the American community” (mean response of 6.40). When including these two items together on a scale, Cronbach’s alpha is 0.885; thus, the sum of these two items was used in the analyses.
Fairness was originally measured with six items, coded with higher values indicating greater degrees of perceived unfairness: “1. Federal income taxes are fair to people in my particular income situation,” “2. Federal income tax laws are fair to most people,” “3. Compared to other people like me, I pay more than my fair share of taxes,” “4. I think that the interest of people in my income group are well represented when Congress considers tax law changes,” “5. I think the federal income tax system benefits the rich and is unfair to the working man and woman,” and “6. Many people fudge on their taxes because they think the tax laws are unfair to them.” However, including all six fairness items on a scale does not result in acceptable scale validity (Cronbach’s alpha = 0.68). Reliability analysis indicates that only items 1, 2, and 4 should be included in the scale (Cronbach’s alpha = 0.79). Thus, the fairness variable used in the analyses was the sum of the responses to these three items.
Attitude toward additional money was measured on a 7-point Likert scale as the response to, “I would really enjoy reducing my tax bill by $500, regardless of whether it was illegal or not,” with 1 = strongly disagree and 7 = strongly agree (mean response of 2.11).
Familiarity (how often participants had taken an automobile deduction in the past) was measured on a 7-point Likert scale with 1 = never and 7 = very often (mean response of 2.71).
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Bobek, D.D., Hageman, A.M. & Kelliher, C.F. Analyzing the Role of Social Norms in Tax Compliance Behavior. J Bus Ethics 115, 451–468 (2013). https://doi.org/10.1007/s10551-012-1390-7
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DOI: https://doi.org/10.1007/s10551-012-1390-7