The evasion gamble : behavioural insights on tax compliance

The thesis explores the insights from behavioural economic research for tax compliance. The theoretical model of tax evasion by Allingham and Sandmo (1972) is reviewed and then enriched with findings from research on bounded rationality and unbounded motivation for human behaviour. In specific implications for tax compliance of loss aversion, overweighting of low probabilities, small sample bias and procrastination are discussed. It is suggested that the perception of probabilities and the tendency to procrastinate affect the decision on whether or not to comply taxes. Further, implications for tax compliance of moral motivation, conditional cooperation and the threat of intrinsic motivation being crowded out are discussed. The act of complying, even when the risk of getting caught is low, indicate that people do not behave entirely selfinterested. To explore the evasion decision further, and look in depth at some of the phenomena discussed, a survey-experiment is conducted. The objective is to study whether peoples’ tendency to overweigh low probabilities and their propensity to confirm to social norms affect their willingness to consider hiring black labour. The results from the experiment are reported at the end of the thesis. The main finding is that people overweigh low probabilities and that it affects their decision on considering hiring black labour