Why do many, indeed most, taxpayers pay their taxes honestly, even though there is very little chance of being caught cheating or of their honesty being observed by anyone? And why, despite this widespread willingness to contribute to the common good, does the efficiency of fiscal authorities vary so much between different countries? When, after the current crises and wars, discussion focuses more intensively on the repayment of the generous sums of public debt currently being accumulated, these questions will attract even more public attention than they have already done in the context of the major tax scandals of recent years.

This monograph represents the second volume of findings from the ERC Advanced Grant by political scientists Sven Steinmo and John D'Atoma. Their first volume, also published in Open Access1 examined the history of fiscal (dis)honesty in Sweden, Italy, the UK, the US and Romania, with contributions from historians such as Michelle D'Arcy, Martin Daunton and Carolyn C. Jones, to name but a few. Using historical tools, they analysed the development of different tax and fiscal systems with their specific traditions, strengths and weaknesses, including tax education, which was sometimes more and sometimes less pronounced. The aim of this first volume was to evaluate historical attempts by the state to establish, promote or maintain tax honesty. Which methods of the past were helpful, which less so, where were the limits of state agency, how did problem areas arise that may still have an impact today?

The second volume takes a completely different approach by applying methods of behavioural economics. A total of 1,700 subjects from four of the countries mentioned (unfortunately excluding Romania) are confronted with identical tax-paying situations in the laboratory. What proportion of their income earned through various tasks do they declare for taxation? How does this share change when their taxes go into a fund that is distributed equally among all participants at the end? How do the participants behave when the tax rate increases or when they have to deal with progressive tax rates? What role do their pro- or anti-social behaviour patterns play, and how do their values affect payment behaviour? What differences can be identified between nations?

In setting up their experiments (“reasonable choice approach”), Steinmo and D'Attoma build on existing research on tax morality, varying previously conducted experimental set-ups or combining them in new ways. Nevertheless, the clear and stringent arrangement and execution yield some surprising findings and suggest new conclusions. They are also the first to test variations across countries in individuals´ willingness to pay under different redistributive regimes.

Basically, according to Steinmo and D'Attoma, our tax-paying behaviour is determined by a combination of three factors: firstly, all taxpayers have an interest in maximising their self-interest, i.e. in minimising their own burden; secondly, however, they (because humans are social beings) also want to conform to the norms of their social group; and thirdly, they want to act according to their values in order to experience their own actions as consistent and coherent. The balance of the three variables differs much more between individuals than between nations: everywhere there are probands for whom utility maximisation is more important (primarily for the educated economists of all countries) and others who are more oriented towards social norms or their personal value standards.

But where do the significant differences between the countries come from? Steinmo and D'Attoma reveal that, for example, the Italian treasury is not less efficient than the Swedish just because Italians adhere less to norms than Swedes; in both countries, there is an equally strong desire to align one's own behaviour with the norms of the group. The informal, i.e. actually practised, norms of paying taxes in Italy, however, differ greatly from the formal ones: tax evasion is practised by so many people that dishonest paying is the informal norm − to which people, as social beings, try to adhere. Due to the high number of violations of formal norms (while at the same time the informal ones are adhered to), the fiscal authorities hardly have a chance to penalise the evasions − which in turn strengthens the informal norm of non-payment. The problem thus arises from the fact that the formal and informal norms diverge so widely, and that the deviant behaviour of individuals cannot be controlled and penalised by the state because it simply happens too often. The other way round, it certainly seems that opportunity makes thieves − and a more efficient treasury may in some cases simply be due to the fact that there are fewer opportunities for evasion. The structure of the economy (with many wage earners subject to tax deduction at source in Sweden, and many more self-employed with great leeway in tax arrangements in Italy) is therefore of great importance − but it is not the only relevant factor. We also learn about the importance of the size of the tax burden for the willingness to pay (the willingness of the rich to pay is indeed decreasing!) and about that of progressive tax systems (which few taxpayers even understand).

On the big question of whether institutions or culture determine tax-paying behaviour, the answer is: both. Despite the impressively clear structure and precise language, this result is not really surprising after reading the historical analyses in the “The Leap of Faith” mentioned above. It is all the more regrettable that the West-centricity, which has been typical of welfare state research since Esping-Anderson, is not even rudimentarily challenged with the four countries chosen as examples. Not only has post-socialist Romania been left out of the experiments in the second volume, but countries from the post-colonial contexts of South America, Africa or Asia, for example, are also neglected. Thus despite the effort expended in developing a coherent theory of social action, it can ultimately only apply to “the West”.

Note:
1 Sven Steinmo / John D´Attoma, The Leap of Faith: The Fiscal Foundations of Successful Government in Europe and America, Oxford 2018.