(III) Prof. Erich Kirchler
Faculty of Psychology
University of Vienna, Austria
Title: Cooperation between Citizens and the State: Power of Tax Authorities and Trust in Taxpayers
How to assure tax compliance and combat aggressive tax avoidance and evasion? The traditional command-and-control approach in law and economics bases on the assumption that taxpayers take rational utility-maximizing decisions. They pay taxes only if audit probability is high, if the risk of detection of evasion is high, and if fines in case of evasion are high. Indeed, audits and fines are necessary, but the effect is weak.
To understand the motives for tax compliance it is necessary to understand taxpayers’ attitudes towards taxes and tax authorities, their knowledge and understanding of tax laws, their personal and social norms, and fairness concerns related to distributive and procedural justice. Besides the application of deterrence measures to combat tax evasion and the necessity of building an international consensus on developing instruments to control and influence the strategic behavior of multinationals, it is necessary to establish a sense of right and wrong in society and mutual agreement that tax evasion is more than a minor crime. How can authorities design regulation strategies to strengthen the sense of right-doing in the community? Successful establishment of mutual cooperation depends on power of authorities and citizens’ trust in authorities. Two modalities of power that are relevant: coercive power and legitimate power. Regulation basing on coercive power, relying on enforcement measures fuels the impression that tax authorities are approaching compliant and non-compliant taxpayers in a uniform way. This undifferentiated approach may cause negative feelings such as uncertainty, anger, and anxiety. It may lead to perceptions of arbitrariness, undermine trust and lead to an antagonistic interaction climate. The “slippery slope framework” distinguishes between an antagonistic interaction climate and a synergistic interaction climate and predicts that compliance depends on the interaction climate. These assumptions were tested in laboratory experiments and in survey studies which support the assumption that voluntary cooperation is high when authorities are perceived as trustworthy, whereas enforced compliance results from coercive power manifestation.