The Social Norms of Tax Compliance: Evidence from Australia, Singapore, and the United States

TLDR: This paper examined the role of social norms on tax compliance in three different countries and concluded that social norms help to explain tax compliance intentions and why tax compliance rates are higher than would be predicted by strictly economic models.

Abstract: Tax compliance is a concern to governments around the world. Prior research (Alm, J. and I. Sanchez: 1995, KYKLOS 48, 3–19) has attributed unexplained inter-country differences in compliance rates to differences in social norms. Economics researchers studying tax compliance in the United States (U.S.) (see for example J. Andreoni et al.: 1998, Journal of Economic Literature 36, 818–860) have called for more attention to social (as opposed to economic) influences on tax compliance. In this study, we extend this prior research by explicitly examining the role of social norms [Cialdini, R. and M. Trost: 1998, The Handbook of Social Psychology (Oxford University Press, New York)] on tax compliance in three different countries. We test our research hypotheses using a hypothetical compliance scenario, which was administered in Australia, Singapore, and the U.S. There were differences in compliance rates and social norms among the three countries. Factor analysis of the social norm questions identified three distinct social norm constructs. Two of these factors were significant in explaining tax compliance behavior. The first and most influential factor was taxpayers’ own personal moral beliefs, along with the beliefs of those close to them (e.g., friends and important others). The second significant factor represented societal views of proper behavior. We conclude that social norms help to explain tax compliance intentions and why tax compliance rates are higher than would be predicted by strictly economic models.