Prospect Theory and Tax Compliance

doi:10.1017/9781108759458.037

37 - Prospect Theory and Tax Compliance

from Part VI - Compliance and Cognition

Published online by Cambridge University Press: 07 May 2021

Stephan Muehlbacher

Edited by

Benjamin van Rooij and

D. Daniel Sokol

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Benjamin van Rooij: Affiliation:
School of Law, University of Amsterdam
D. Daniel Sokol: Affiliation:
University of Florida

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Summary

Abstract: This chapter discusses prospect theory as an alternative approach in explaining tax compliance behavior. (Non)Compliance is frequently modeled as the outcome of a decision under risk, that is, the choice between a safe option of being compliant and a risky option of not complying with the law. Noncompliance results in either a better or a worse outcome than compliance, depending on whether the behavior is audited and penalized. The most prominent descriptive model to explain risky decisions is prospect theory. Many of this theory’s core ideas have been applied in theoretical and empirical studies of compliance. After a brief overview of prospect theory, this chapter summarizes empirical studies as examples for prospect theory inspired compliance research. It closes with a summary and critique of this approach.

Type: Chapter
Information: The Cambridge Handbook of Compliance , pp. 541 - 550

DOI: https://doi.org/10.1017/9781108759458.037 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2021

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