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Does Using the Tax System to Collect Other Obligations Affect Tax Compliance An Australian Case Stud

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Age Older taxpayers are less likely to cheat on taxes. ... This increases the benefit to be derived from cheating main effect hypothesis. ... – PowerPoint PPT presentation

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Title: Does Using the Tax System to Collect Other Obligations Affect Tax Compliance An Australian Case Stud


1
Does Using the Tax System to Collect Other
Obligations Affect Tax Compliance?An Australian
Case Study
PA 546 Constantine Hadjilambrinos
  • Lecture 11
  • November 15, 2005

2
Australian Federal tax agency is also responsible
for collecting child support payments (CSS) and
student loan obligations (HECS).
PA 546 Constantine Hadjilambrinos
  • Similar proposals for U.S. systems, particularly
    for child support obligations.
  • Comparisons possible because both systems are
    taxpayer-active.
  • Article is interesting because it explores the
    motivations for voluntary compliance.

3
PA 546 Constantine Hadjilambrinos
Motivation is to increase efficiency of
collection of child support and student loans.
  • If collection of CSS and HECS through tax system
    is detrimental to voluntary compliance, there are
    hidden costs of collection.

4
Tax compliance traditionally understood in terms
of benefits of successful evasion vs. costs of
detection.
PA 546 Constantine Hadjilambrinos
  • Monetary costs fines and penalties.
  • Cost Risk of detection X Severity of fines and
    penalties
  • Social sanctions.

5
PA 546 Constantine Hadjilambrinos
  • Fear not sufficient for explaining why people pay
    tax.
  • Alternative/Complementary explanations
  • Moral obligationpeople pay tax because they
    believe its the right thing to do.
  • Community norms, personal norms, tax morale
  • Perceived fairness of exchangepeople pay tax
    because they trust government to use revenues to
    provide useful benefits.
  • Contingent consent

6
Other factors known to affect tax compliance
PA 546 Constantine Hadjilambrinos
  • AgeOlder taxpayers are less likely to cheat on
    taxes.
  • GenderWomen are less likely to cheat on taxes.
  • Income levelPoor people are more likely to cheat
    on taxes. Rich people are also more likely to
    cheat on taxes.
  • When it comes to additional payments, it
    is reasonable to assume that likelihood of
    cheating will increase for poor people.

7
Hypotheses about the effects of adding child
support and student loan payments
PA 546 Constantine Hadjilambrinos
  • Additional payments have the effect of increasing
    the marginal tax rate. This increases the
    benefit to be derived from cheatingmain effect
    hypothesis.
  • Additional payments could interact with
    constraints of deterrence, moral obligation, and
    trustworthiness, increasing incidence of cheating.

8
The survey
PA 546 Constantine Hadjilambrinos
  • Mail survey29 response rate
  • Measuresmulti-item, multi-dimensional
  • Tax evasion under-reporting income, engaging in
    cash economy, exaggerating deductions.
  • Additional payments CSS and/or HECS.
  • Deterrence perceived likelihood of getting
    caught, perceived likelihood of sanctioning,
    perceived severity of sanctions.
  • Moral obligation personal norm of tax honesty,
    shame displacement and acknowledgement.
  • Trustworthiness exchange trustworthiness,
    communal trustworthiness.

9
The results
PA 546 Constantine Hadjilambrinos
  • Findings of previous research confirmed.
  • Only significant interaction relationships were
    with trustworthiness and with income level.
  • Tax evasion is higher after CSS and HECS
    payments, even after controlling for gender, age,
    income, and the constraint variables (deterrence,
    moral obligation, and trustworthinessthe main
    effect hypothesis is supported.
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