Tax evasion and emotions: An empirical test of re-integrative shaming theory
Highlights
• Social shaming mechanism may be an effective tool in the hands of policy makers. • Audit policy that strengthens the emotional dimension of cheating favors compliance. • The duration of public exposure in case of detection affects the behavior and emotional responses. • A higher shame-proneness score reduces the likelihood of cheating. • Compliance is lower when shaming turns into stigmatization.
Introduction
Shame is a self-conscious emotion that can act as a force for social conformity and social cohesion (Lewis, 1992). The anticipation of shame, or shame avoidance, is thought to motivate the individual to accept his/her responsibility for the welfare of the group (Hooge et al., 2008, Lewis, 1971, Tomkins, 1962). In criminological literature, shaming refers to ‘all social means of expressing disapproval with the intention of invoking remorse in the person being shamed and/or condemnation by others who become aware of shaming’ (Braithwaite, 1989). Shaming can be either of two types: shaming that becomes stigmatization of the offender and his exclusion from the society of law-abiding citizens, and shaming that is followed by forgiveness and reintegration of the offender. According to Braithwaite (1989), the most effective form of shaming is not usually applied from the State but occurs in micro-groups of interdependent people. Re-integrative shaming would lead to lower crime rates, with disapproval dispensed without eliciting rejection by the disapprovers or dismantling potentialities for future disapproval. Stigmatization, instead, would make criminal subcultures, that reject the rejectors, more attractive. One powerful means of stigmatization, is labeling (Becker, 1963). When a negative label gets applied to an individual who has supposedly broken any socially accepted rule, it becomes part of the individual’s identity, and from then on he/she is ‘apt to employ his/her deviant behavior or a role based upon it as a means of defense, attack, or adjustment to the problem created by the societal reaction’ (see Lemert, 2002). A label applied after ‘primarily deviant’ behavior may thus become a key aspect of the individual’s identity, and prompt ‘secondarily deviant’ behavior.
In tax law enforcement, for example, it is well known that deterrence-based enforcement strategies, especially when perceived as unfair according to self-reports, can cause a paradoxical reaction or intention of future resistance to compliance and disrespect for the law (e.g. Murphy, 2008, Murphy and Harris, 2007). Here, we aimed to test the predictions of shaming theory in a controlled white-collar crime context with an experimental tax-payment game.
The importance of shame and more generally of emotions in tax compliance has been almost unexplored. The standard economics-of-crime model formulated by Allingham and Sandmo (1972) and Yitzhaki (1974) has inspired many empirical tests (see Alm, 1991, Cowell, 1990, Andreoni et al., 1998, Elffers, 1991, Slemrod, 2007 for surveys). If these tests confirm the basic mechanisms of the deterrence models, they however reveal much more compliance than predicted. Relaxing the hypothesis of risk neutrality and assuming risk aversion is not sufficient to explain the level of compliance observed in empirical settings (Bayer & Sutter, 2009). This has motivated the exploration of other dimensions of tax compliance, such as the heuristics and biases that lead individuals to overweight small audit probabilities (Alm, McClelland, & Schulze, 1992), or the importance of equity and the role of voting on the use of taxes (Pommerehne et al., 1994). The role of tax morale (Cummings et al., 2009, Kirchler, 2007, Torgler, 2002), ethics, social norms and social interactions has been investigated more recently (Fortin et al., 2007, Lefebvre et al., 2011, Myles and Naylor, 1996). Civic norms (Slemrod, 1998), moral appeals (Blumenthal et al., 2001, Schwartz and Orleans, 1967), or expectation of collective blame (Bosco & Mittone, 1997) have been shown to exert contrasted influence on tax compliance without, however, fully explaining it. In this paper, we investigate a new hypothesis by considering that our understanding of tax compliance can be improved by analyzing the role of emotions in dynamic settings.
Our expectation is that both income reporting and audit, possibly followed by sanctions, elicit emotions in individuals. We assume that emotions do not simply proxy the psychic cost of evading taxes; they also constitute a driving force of behavior (Zeelenberg, 2007). In other words, the emotions associated with income reporting, audit, and sanctions can influence further compliance. Various emotions might be related with the act of evading taxes and its consequences. Indeed, moral emotions might signal violations of social norms (Thøgersen, 2006, Zeelenberg et al., 2008, Hooge et al., 2008). For instance, the evader might feel guilty (Fessler and Haley, 2003, Tangney, 1991) for not helping needy people in the community, or feel ashamed (Keltner & Buswell, 1996) if caught evading taxes and publicly denounced (Haidt, 2003, Tangney and Dearing, 2002). The experience of guilt is commonly associated to pro-social behavior motivated by reparatory acts (Roseman et al., 1994, Tangney et al., 1996). For its part, shame may motivate withdrawal and avoidance of social interactions (Tangney et al., 1996). Moreover, underreporting income may generate anticipatory and anticipated emotions (Lowenstein, Hsee, Weber, & Welch, 2001). Indeed, evaders may experience anticipatory emotions when taking the risk of reporting less than requested and these risk-related anticipatory emotions are likely to increase with the level of tax evasion. Moreover, evaders may experience anticipated emotions when thinking of how bad they will feel if audited and punished. We expect that the intensity of the emotions related to the detection of cheating differs according to the publicity of this information, due to shaming. Indeed, shaming could amplify moral emotions (Izard, 1977, Sabini and Silver, 1997) related to the violations of a norm (e.g., tax evasion), and affect social behavior (e.g. tax compliance) (Ahmed and Braithwaite, 2004, Amodio et al., 2007, Murphy and Harris, 2007).
Two recent studies investigated directly the role of emotions on tax compliance (Coricelli, Joffily, Montmarquette, & Villeval, 2010, and Maciejovsky, Schwarzenberger, & Kirchler, 2011). Coricelli et al. (2010) measured skin conductance responses (SCRs) and self reported emotional arousal and valence in a tax evasion experimental task. They found higher SCR when participants evaded, and higher arousal and negative affects associated with being audited. A treatment in which the pictures of evaders were publicly displayed few seconds at the end of the period favored compliance. The decision to evade and the proportion of evaded income were related to the anticipation and the experience of emotional responses. Maciejovsky et al. (2011) investigated how the interplay between cognition and emotion affects tax ethics. They found an interaction effect of cognitive and emotional priming to moral judgments related to tax evasion. This study also shows how the effectiveness of economic variables, such as audit probabilities and the amount of the fines, is influenced by affect.
The originality of our experimental protocol consists of manipulating the risk of being publicly exposed for underreporting. Our shaming “ritual” consists of showing the picture of the evader in addition to a monetary sanction (similarly to Coricelli et al. (2010)). In the so-called Pardon treatment, shaming was followed by reintegration: after having his picture displayed, the evader was fully reintegrated in the group (i.e. his picture disappeared from the screens, like in Coricelli et al., 2010).1 In contrast, in the so-called Stigma treatment, shaming was followed by stigmatization, where expiation never ended. Indeed, the evader’s picture was publicly displayed for the rest of an “experimental life”; as a consequence, the individual was permanently labeled a cheater for an entire sequence. Our laboratory experiment thus complements these previous studies (Coricelli et al., 2010; and Maciejovsky et al., 2011). Indeed, Coricelli et al. (2010) found that there was a beneficial effect of showing the picture of evaders but only one type of shaming was introduced; the current study aims to investigate the dynamics of shaming and to better specify that previous result. Here, we investigate how the duration of public exposure in case of detection affects the behavior and emotional responses related to tax evasion in a dynamic setting. In addition, in this paper we introduce psychological measures of moral emotions.
Reporting behavior should be similar in both treatments as the parameters of the game, such as audit probabilities, tax rate and income levels, were the same. The reason why behavior was expected to differ between treatments is the prospect and the experience of stigmatization. Indeed, lower levels of evasion were expected in the Pardon treatment, as a consequence of reintegration in the group after being caught cheating. Higher levels of evasion were expected after the first evasion in the Stigma treatment, since once the feeling of shame has been experienced, compliance would not change the evader’s status. Such anticipated and experienced emotional consequences should be the main determinants of treatment effects on decisions and affective self-reports.
Our main findings show that, indeed, when cheating is made public but the contravener is successively reintegrated, the total amount of cheating is significantly reduced compared to when cheating is made public and publicity is not immediately followed by reintegration. The latter condition is associated with more intense negative emotions related to cheating. This suggests that the employment of a social shaming mechanism may be an effective, albeit very sensitive, tool in the hands of policy makers.
The remainder of this paper is organized as follows. Section 2 presents the experimental materials and methods. Section 3 reports the experimental results. Section 4 discusses these results and concludes.
Section snippets
Participants
Our experiment was conducted at the Groupe d’Analyse et de Théorie Economique (GATE), CNRS, France. 32 participants (mean age: 23; SD: 6.6), 16 for each session, were recruited from undergraduate courses in local Engineering and Business schools, by means of the ORSEE software (Greiner, 2004). The experiment was computerized using the REGATE program (Zeiliger, 2000).
Design
The experiment consists of two treatments: the Sigma treatment and the Pardon treatment (see Fig. 1 and instructions in Appendix A
Results
Compared to the Stigma treatment, an environment where cheating is made public and publicity immediately followed by reintegration (Pardon treatment) reduces evasion. The average proportion evaded is 40.32% in the Stigma treatment and 31.89% in the Pardon treatment [Kruskal–Wallis equality-of-populations rank test (K–W), Chi2 = 8.615, p = 0.003]. The average proportion evaded in the Stigma treatment is not significantly different compared to a Benchmark treatment (from Coricelli et al. (2010))
Discussion and conclusion
Tax compliance may be guided by the willingness to avoid negative emotions raised by potential detection and public denouncement, as shown before by Coricelli et al. (2010) and by our analysis of self-reports on the intensity and hedonic valence of feelings. This suggests that there is a disutility in being labeled as a cheater in a group, although the maximization of one’s monetary payoff may rationally motivate tax evasion and although participants can learn over time that there are other
Acknowledgments
This work was supported by a CIMeC Research Fellowship to ER, a grant from the CIBLE program of the Rhone-Alpes Region to Marie Claire Villeval, and ANR and PAT (Provincia Autonoma di Trento) grant to GC. We would like to thank Stephen Parrott, Carol Wain and Michael Wright for stimulating discussions and for their constructive comments on a preliminary version of this manuscript.
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