Taxpayers' Attitudes to Income Tax Evasion: An Empirical Study
![handle is hein.journals/britaxrv1980 and id is 62 raw text is:
TAXPAYERS' ATTITUDES TO INCOME TAX
EVASION: AN EMPIRICAL STUDY
PETER DEAN, TONY KEENAN AND FIONA KENNEY
INTRODUCTION
RAISING revenue is an important function of all governments. Indeed
Cicero called taxes the sinews of the state. In the United Kingdom
the income tax is the single most important source of government
revenue. People's attitudes towards the income tax are therefore
of crucial importance, affecting not only the Government's ability
to raise revenue, but also other fiscal aims such as economic
stabilisation and income redistribution. This paper is about income
tax compliance, i.e. people's willingness to pay income tax. It is
also about the obverse, tax resistance. Tax resistance takes two
major forms: avoidance and evasion, both of which diminish the
Government's tax receipts. Tax avoidance is countenanced by the
law; evasion involves breaking it.
Economists have postulated a relationship between tax rates and
tax resistance: the higher the level of taxation the greater the
incentive to escape tax burdens. The relationship could apply over
time. Thus as the general level of taxation increased, taxpayers
might resort to evasion and avoidance to protect post-tax income.
It could also apply to a cross-section of taxpayers at a point in
time. Those paying tax at high marginal rates would receive higher
rewards for evasion and avoidance and thus might exhibit more
tax resistance than those paying tax at lower marginal rates. On
the other hand diminishing marginal utility of money might disturb
this relationship. In other words, although for high marginal rate
taxpayers the rewards for tax resistance are higher, these taxpayers
may attach a lower economic significance to the rewards than
taxpayers on lower incomes whose needs for extra income may be
more keenly felt.
Clearly tax evasion pays, but it is only achieved at a certain cost.
Economists Allingham and Sandmo 1 take the cost to be a
combination of the likelihood of detection and the probable penalties
if detected. Their model assumes the taxpayer to be a perfectly
amoral, risk-averse and utility-maximising individual. He weighs the
tax saved through evasion against the risks of detection and punish-
ment. Provided the savings are large enough in relation to cost, he
1 M. G. Allingham and A. Sandmo, Income Tax Evasion: a Theoretical
Analysis [1972] I Journal of Public Economics 323-338.
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Taxpayers' Attitudes to Income Tax Evasion: An Empirical Study
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