The Nottingham Centre for Economic and Political Research was officially launched on 8 October 2015. Professor Raymond Duch (University of Oxford) gave the inaugural seminar, presenting research on “Why we cheat: Experimental evidence on tax compliance”. NICEP Co-director Anja Neundorf opened the event that was attended by more than 50 people, including the Pro-Vice Chancellor of Social Science, Professor Todd Landman, the Heads of School from both economics and politics, and the Faculty Director of Research. The stimulating talk and engaging discussion was followed by a drinks reception.
Successful redistributive taxation requires that the rich actually pay their taxes. This essay demonstrates that the rich are much less likely than poor to comply with taxation. National survey data indicate that the rich typically have much lower tax morale. Aggregate data suggest that tax compliance is lower in highly unequal societies — possibly because in these countries the tax burden for the rich is relatively high. Is it the case that simply acquiring wealth results in an antipathy towards taxation?
Experiments with real effort tasks, varying tax rates and opportunities to cheat allow us to better understand who complies with redistributive taxes. We test three conjectures: the rich are more greedy and unethical than the poor; there is a universal norm of an unacceptable taxation threshold that ranges between 25 and 30 percent; the rich condition their tax compliance on the relationship between income and ability or effort.
There is overwhelming evidence that subjects who earn more money systematically cheat more — simply being more successful and acquiring more wealth in our experiments results in greedier behaviour. In most cases though all subjects ratchet up their cheating when tax rates approach 30 percent — there is some evidence for a normative threshold of acceptable taxation. The baseline treatment in our experiments was one in which income was directly linked to performance in the real effort task. When income is directly associated with performance, tax compliance by the rich is maximised. In our “status” treatment, some subjects are randomly assigned to a high wage condition and others to a low wage condition — “chance” factors in addition to ability determine income. When luck or status determine income the rich cheat at significantly higher rates and it is high wage earners who are disadvantaged by factors unrelated to ability who are particularly aggressive non-compliers.
Listen to the event recording on our podcasts page.