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Enforce taxes, but cautiously: societal implications of the slippery slope framework

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The general public often demands more frequent audits and harsher penalties to discourage tax evasion. This paper explores how deterrence via better-equipped tax agencies interrelates with the motivation to voluntarily pay taxes, and how both factors jointly influence tax evasion. For a panel of up to 25 European countries, this paper studies aggregate implications of the Slippery Slope hypothesis of tax compliance, and contributes to the literature on the societal dimension of tax evasion. The results suggest that both higher trust in authorities and increased deterrence efforts are positively associated with tax compliance. Trust and deterrence interact and depend on each other: if trust in authorities is low, an increase in tax enforcement works best for narrowing the tax gap (and vice versa). Generally, the positive influence of trust diminishes with increasing deterrence.

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  1. Taxpayers comply with the tax laws and report income honestly not because they are forced to do so, but because they want to or feel obliged to, for example due to moral or societal norms.

  2. See e.g. Andreoni et al. (1998) and Slemrod (2007) for comprehensive literature reviews. Third-party reporting deprives many taxpayers of the opportunity to cheat. This will be discussed in Sect. 2.

  3. See, for example, Frunza et al. (2011) and Pfeiffer and Semerad (2013) for definitions, detailed explanations and empirical applications.

  4. Lisi (2012), with a cross-country study, tried to test the SSF’s assumptions on the aggregate level. He finds negative correlations between trust (World Values Survey data), power (proxied with the “Rule of Law” index (World Bank)) and tax evasion (size of the shadow economy). However, the author failed to incorporate the interplay of trust and power, and his indicator for “power of authorities” might be rather a measure of government trustworthiness than of deterrence.

  5. Center for Social and Economic Research, a non-profit research institute based in Warsaw (Poland). CASE prepared the VAT-gap reports for the European Commission.

  6. Measures for other direct taxes, e.g. the personal taxes, with a comparable coverage of countries and years are not available.

  7. The ESS aims at mapping social and political attitudes in Europe. Starting in 2002, surveys are conducted every two years, covering more than 30 European countries.

  8. Tables and Figures with descriptions and sources of the data, a listing of average tax compliance, trust and deterrence in the EU countries used in the paper, as well as illustrations of dynamics of the variables of interest within countries and over time can be found in the Online Appendix.

  9. The explanatory and control variables used in this paper are not subject to multicollinearity. Given the rule of thumb that the Variance Inflation Factor (VIF) should not exceed a value of 10, all explanatory variables pass this condition. The highest VIFs are found for GDP (3.23), trust (2.64) and deterrence (1.18). The condition index of the explanatory variables is 3.57, markedly below the value of 30 which indicates strong multicollinearity. The condition index was calculated for a correlation matrix with an intercept.

  10. Tax compliance in year t will influence TC in year t + 1. However, with a small t, including lagged tax compliance as an additional control variable would introduce endogeneity to the statistical model (see, e.g., Nickell, 1981).

  11. Bulgaria, with a BLUP of around + 5 is a special case, since trust in authorities in this country is the lowest in the whole sample and audit efforts are only average, compared to the other European countries. Likely, tax compliance, which spiked around the years 2006–2008, was over-reported, at least in the years prior to Bulgaria joining the European Union in 2007. The large standard error for Luxembourg originates from calculating the BLUP with only two available observations.


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This research was funded by the German Research Council (DFG) in its Research and Training Group (RTG) 1723 “Globalization and Development”. I am grateful for guidance from Andreas Wagener and Kay Blaufus. I thank Susan Steiner, Tejasvi Velayudhan, Reinhard Weisser and conference & seminar participants in Rust (Austria), Hannover and Tokyo for helpful suggestions. I thank three anonymous referees for their many valuable comments.

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Correspondence to Stefanos A. Tsikas.

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Tsikas, S.A. Enforce taxes, but cautiously: societal implications of the slippery slope framework. Eur J Law Econ 50, 149–170 (2020).

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