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11 eJTR 5 (2013)
Indicators of Tax Morale: An Exploratory Study

handle is hein.journals/ejotaxrs11 and id is 5 raw text is: eJournal of Tax Research (2013) vol. 11, no. 1, pp. 5-22 Indicators of tax morale: an exploratory study Margaret McKercharl*, Kim Bloomquist2, and Jeff Pope3 Abstract Taxpayer compliance research has tended to focus on why people evade their taxes rather than on why the vast majority of people do willingly comply with their tax obligations. Whilst tax administrations globally seek to improve the efficiency of their revenue collections, there is growing recognition of the need to have a deeper understanding of why taxpayers comply voluntarily. A person's internal motivations to comply are commonly characterised as his/her 'tax morale', the 'key' to the puzzle of understanding taxpayer compliance behavior. Thus tax morale is often seen as a 'black box' or the error term for the difference between predicted and observed behavior, a puzzle within a puzzle. This paper initially explores the origins and likely determinants of tax morale, followed by a discussion of measurement difficulties. The key feature of this paper is our attempt to use real taxpayers whose actual compliance behavior is known (rather than self-reported) to identify factors that could be indicative of taxpayer morale from data reported in individual tax returns. Using data from the Internal Revenue Service's National Research Program from the audit of 1,101 cases with only sole proprietor income, we tested six indicators that theoretically have some correlation with tax morale. Our main findings are threefold. Firstly, IRS random audit studies suggest a possible tax morale component to taxpayer compliance based on the distribution of reporting compliance rates. Secondly, it is extremely difficult to separate this tax morale component from other factors that are at least equally significant in deterring underreporting. Thirdly, although much of the focus in the more recent tax morale literature has focused on religiosity as a causal factor, a more secular explanation may be simply one's personal integrity (or moral rules and norms) irrespective of religious beliefs if any. JEL classification: K34 Tax Law PsycINFO classification: 2260 (Research Methods and Experimental Design) Keywords: compliance; taxation law 1. INTRODUCTION Taxpayer compliance research has tended to focus on why people evade their taxes rather than on why the vast majority of people do willingly comply with their tax obligations (Slemrod, 1992). By and large this is not surprising given the threat that tax evasion poses to revenue collections and societal well-being. Yet as we observe Margaret McKerchar is a Professor at the Australian School of Taxation and Business Law (Atax), University of New South Wales (UNSW), NSW 2052, Australia. Tel. +61 2 9385 9550; Fax +61 2 9313 6658. Email address: m.mckerchar@unsw.edu.au. * Corresponding author. Sincere thanks to Brian Erard who provided helpful feedback on earlier versions of this article and to participants at the 2012 Tax Research Network Conference, University of Roehampton. Nonetheless the usual caveats apply. 2 Kim Bloomquist is a Senior Economist with the Internal Revenue Service (IRS), 1111 Constitution Ave NW K-3rd Floor/006 Washington, DC USA 20224. Tel. +1 202 874 0171; Fax +1 202 874 0660. Email address: kim.bloomquist@ irs.gov. 3 Jeff Pope is Professor and Director, Tax Policy Research Unit, School of Economics and Finance, Curtin University, GPO Box U1987, Perth, WA 6845, Australia. Tel. +61 8 9266 4034; Fax + 61 8 9266 3026. Email address: jeff.pope@cbs.curtin.edu.au.

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