Tax Morale in Norway (and elsewhere) – flexible or firm?

Presentation for the seminar in Lusaka April 2012

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Some results from academic research

• Economic view of man (homo economicus):• deterrence (the risk of getting caught and the size of the

punishment) is the sole influencing factor on compliance

• Problematic view:• does not explain the high level of voluntary compliance

given that risks are small and penalties relatively small

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General levelOther tax payers

Individual levelAudited tax payers

Audits have a positive effect

Potential negative effect on

compliant tax payers

Potential positive effect on non-

compliant tax payers

Potential negative effect on non-

compliant tax payers

Deterrence: The effect of audit

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More influencing factors according to research

• Opportunity (sometimes) makes thief

• Inefficient public spending lowers compliance

• Norms (“tax morale”) influences compliance

• RA dealings with the taxpayer has an impact

• State and structure of the economy

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Elements influencing taxpayer compliance

Tax morale

Economy

Deterrence

Opportunity

Revenue authority

behavior shows fairness

Public spending efficiency

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Definition of tax morale

The norms of behavior governing citizens and businesses in their relationship with government and its revenue body

In other words:

Tax morale describes the moral principles or values individuals hold about paying their or their employers tax

Tax morale is not to be treated as a black box

Mechanisms must be identified that shows how tax morale might arise or how it might be maintained

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Tax morale – where does it come from?

Trade unions

Media

Software suppliers

Industry

Neigbours, friends, idols, general publicStaff

Competitors

AccountantsRevenue body

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Factors influencing tax morale

According to econometric research:

Significant• trust between taxpayers and revenue body• level of religiousness• age• gender• marital status

Not significant:• income• education level

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My personal list of factors that lowers tax morale

• personal norms have priority over public norms

• no bad consciousness when breaking rules

• strong individualism – “self-made man” way of thinking

• free-riding attitudes defeat sense of public duty

• “everyone does it” – generally accepted not to pay tax

• unclear what is right or wrong - creates moral nihilism

• feeling of being unfairly treated by the revenue body

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Empirical results - Norway

A survey from 2001 asked the following question (was also asked in 1980 and 1989):

Do you think it is understandable that people do illicit work?

Answer 1980 1989 2001

Yes 78% 67% 61%

No 6% 9% 13%

Neither yes or no

13% 20% 20%

Don’t know 3% 2% 6%

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Empirical results – Norway and elsewhere

Degreee of tax morale

0

10

20

30

40

50

60

70

Degreee of tax morale

Source: World Values Survey (1993)

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Comparisons across tax administrations

DETERRENCE EFFECTS OF

AUDITS

ECONOMY OPPOR-TUNITIES

FOR TAX EVASION

PUBLIC SPENDING

EFFICIENCY

RA DEALINGS

WITH

TAXPAYER

TAX MORALE

NTA UNCERTAIN GOOD SMALL HIGH MOSTLY

GOOD

FLEXIBLE

AT ? ? ? ? ? ?

TRA ? ? ? ? ? ?

ZRA ? ? ? ? ? ?

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How do taxpayers perceive the Tax Agency?

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Complex interactions between different compliance factors

Personal norms &deterrence

Only personal norms

Only deterrence

Nothing

High level of voluntary compliance

Low level of voluntary compliance

Works well if the deterrence is perceived

as supportive.Procedural fairness

important.Works well because personal norms have

great influence on behaviour.

Deterrence can replace the personal norm. That is a weaker incentive.

Does not work well.

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Conclusions

• A strong tax morale enhances compliance

• Tax morale is maintained and improved by

• revenue body behavior • less threatening, more understanding. more efficient

• cooperating with good forces in society• involving communities, industry organizations, trade unions

• general attitude to paying taxes• build a sense of citizenship

• the quantity and quality of public goods• repair potholes and improve bad schools

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Some discussion points

• Is it possible to measure the tax morale level? If yes, how?

• Do you believe that the tax morale in your country is firm or flexible?

• What can you as a tax administration do to improve the tax morale in your country?