Whether you are a tax professional, business owner, or trusting citizen, each individual is affected by taxes. Is there a psychology behind whether people pay their taxes? At times, it becomes difficult to define legal tax behavior. Governments even claim to simplify the process to eliminate the leaks in the tax system. Using the United States as an example, its tax code has increased from 400,000 to more than 1.6 million words in the last 50 years. Will complicated tax codes make people pay their taxes? What does this say about a government and its knowledge of people's attitudes regarding taxes? What kind of message does a government send when it takes an already hard-to-comprehend tax system and make it even more so?
Those interested in the answers to these questions should consider Kirchler's well-researched book, The Economic Psychology of Tax Behaviour. Although the title makes the book sound boring, the book is, in fact, an easy read with eye-opening insight on how taxation leads to behavior patterns in society. Kirchler, a University of Vienna psychology professor, has taken his interest in tax behavior, and with the support of Valerie and John Braithwaite's research teams at the Australian National University spent six months analyzing taxing authorities' and taxpayers' behaviors. This book gives an excellent history of taxation and is especially informative (and at times intriguing) in portraying the psychology behind taxing authorities' and taxpayers' actions.
Kirchler's motivation is to present a model depicting these actions to sociolegal scholars, economic psychologists, and taxing authorities. He hopes this model will provide direction in how to encourage taxpayers to be cooperative. There are many interpretations of taxpayers' attitudes. In addition, many people do not see “tax evasion … as a serious crime, but rather as a clever act” (p. 53). Using Valerie Braithwaite's research, Kirchler identifies five “motivational postures [to] determine the way taxpayers position themselves in relation to tax authorities” (p. 196). Adding the psychology behind these postures, such as class in society, knowledge of the tax code, an individual's opinion of the government, peer pressure, the fear of getting caught, or whether one feels the tax is fair, is what Kirchler calls “tax morale … the intrinsic motivation to comply” (p. 100).
Kirchler starts with the various intricate parts of tax law. Although daunting, the discussion leads well into the statistics section of his book regarding the “shadow economy,” defined as activities hidden from the law that cannot be documented (p. 13). Kirchler explains that the loss of these and other taxes affects public welfare, weakens the economy, causes feelings of ill treatment, and leads to a disrespect of the government. Taken literally, these possibilities show that noncompliance and tax evasion need to be resolved.
Kirchler stresses Andreoni's research that tax amnesties hurt tax morale because the practice lowers a tax system's efficiency and lets offenders get by without paying penalties (Reference AndreoniAndreoni 1991). Certainly, taxpayers perceive the tax system to be fairer if everyone is treated the same. However, even if taxpayers see that the government treats everyone the same, if taxpayers feel there is no fair exchange for their taxes through public services, tax morale will be low. Unfortunately, everyone's idea of what is a fair exchange for their taxes is different. With so many variables, to improve tax morale the taxing authorities' attitudes need to change rather than the taxpayers'. Kirchler decides that changing from a “cops and robbers” to a service-oriented approach is the answer to the problem (p. 202).
Using his “slippery-slope model” (a three-dimensional model depicting the interactions of trust and power between taxing authorities and taxpayers) (p. 205), Kirchler has graphically displayed the determining factors of tax compliance. If taxing authorities use a cops-and-robbers approach (using the fear of audits and fines to enforce tax compliance), then taxpayers find ways to avoid paying all of their taxes; but if taxing authorities use a service-oriented approach (giving easy-to-understand instructions, clear rules to follow, and unprejudiced respectful treatment), then taxpayers voluntarily pay their taxes. Kirchler does not stress that he has the answer with his model, but states that more research is needed to see if his theory is true. He does, however, give credence to his model as a starting point to prove that there needs to be a change in how taxes are collected and in taxing authorities' attitudes in general.
Those who are interested in the tax processes of government should read Kirchler's book before encouraging change in their tax code or in how taxing authorities interact with taxpayers.
