Research

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Paying fairly: Insights from new study on tax fraud prevention | School of Accounting and FinanceNew research from SAF explores how penalty severity and social norms impact tax compliance, especially in the context of COVID-19 relief fraud.

First Things First: Using Anchoring Bias to Examine the Effect of Penalty Severity and Social Norms on Tax Compliance Journal of Business Ethics

Although ethics research shows that prospective penalties for tax fraud can increase taxpayers’ compliance with tax laws, we do not have a clear understanding of how perceptions of penalty severity impact tax compliance. To address this gap, I first conduct a survey to establish what propriety of penalty severity encourages compliance. I then examine experimentally whether taxpayers’ compliance is jointly influenced by penalty severity and social norms. I expect social norms to moderate the impact of penalty severity because social norms provide a contextual cue about the scope and relevance of an ethical issue. Specifically, I expect that when taxpayers anchor (do not anchor) on information about social norms, the positive impact of penalty severity on tax compliance is suppressed (not suppressed). My results are as predicted. I conclude that governments can increase compliance with tax laws by imposing appropriately severe tax fraud penalties and carefully considering the release of information related to compliance norms.

The Pandora Papers: How punishing tax cheats can serve as a deterrentResearch suggests punishing tax cheats can re-establish a sense of justice among the general public, so authorities should use their resources to ensure culpable offenders are held accountable.

To Punish or Not to Punish? The Impact of Tax Fraud Punishment on Observers’ Tax Compliance (with Jonathan Farrar) SSRN Journal of Business Ethics

We synthesize insights from deterrence theory and social psychology literature on retributive justice to develop and test a theoretical model which predicts how and why observers’ tax compliance intentions are influenced by knowledge of others’ punitive outcomes resulting from tax fraud. We test our model experimentally on a sample of Canadian taxpayers and manipulate perceived responsibility for a fraud and whether a fraud perpetrator is punished. We show that observers’ tax compliance increases when a fraud perpetrator is punished only when the fraud perpetrator is perceived as blameworthy. Furthermore, the psychological process through which this positive influence operates is relatively complex as it includes perceptions of punishment deservingness and affect. We also find that tax compliance decreases when a tax fraud perpetrator is unpunished, regardless of blameworthiness. Our results are robust when we control for economic determinants known to influence fraud. Implications for fraud research and policy are discussed.

When I grow up... Understanding the motivations that individuals have for pursuing a career in tax (with Till-Arne Hahn) Issues in Accounting Education

Often seen as a specialization, the motivation to pursue a career in tax is not well understood, compared to the broader disciplines of law and accounting. Relying on an initial set of exploratory interviews with 38 professionals, this study examines why individuals have decided to pursue careers as tax practitioners. A survey more systematically investigated the motivations, revealing that the qualitative nature of tax work, including the intellectual challenge, is the strongest motivator, regardless of professional background. Overall, intrinsic reasons dominate over more external motivations, and the survey results are largely consistent and convergent with the interview findings. The study contributes to the understanding of the factors that influence individuals to both enter and remain in a very specialized field, which has hereto received limited direct attention. The results should be of interest to students considering a career in tax, as well as those in charge of educating and recruiting future tax practitioners.

Selfish Sharing? The Impact of the Sharing Economy on Tax Reporting Honesty (with Leslie Berger and Lan Guo) SSRN Journal of Business Ethics

In the last decade, advances in technology have significantly disrupted the way firms provide goods and services. At the forefront of this technological disruption is the sharing economy, where individuals earn income by providing services or sharing assets through peer-to-peer (P2P) platforms. With global revenues in the sharing economy projected to increase substantially in the next decade, income from this economy will continue to be an important source of tax revenues for governments around the world. However, sceptics argue that the sharing economy inherently lends itself to dishonest reporting of taxable income. We employ an online experiment, using 746 taxpayers, to observe whether the prosocial benefits often promoted by P2P platforms reduce honest reporting of taxable sharing economy income. Consistent with moral licensing theory, we find that earning income from a prosocial-oriented P2P platform liberates taxpayers to dishonestly report their sharing economy income, and this result is fully driven by taxpayers whose personal values are incongruent with values promoted by the P2P platform. Our paper contributes to the limited but growing research on the sharing economy and its implications for ethical decisions. It also adds to the moral licensing literature by identifying value congruency as an important moderator for moral licensing effect.

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Tisha King, SAF Researcher, helps discover Canada’s trailblazing Black accountants | School of Accounting and FinanceHow Tisha King and her colleagues identified Canada's Black pioneering accountants and their bios.

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