Solidarity, democracy, and tax evasion : an experimental study

Abstract

This paper deals with the nexus between individual solidarity, the collective (democratic) choice of taxes, and the individual choice of how much income tax to evade. I present evidence from four variants of the solidarity game (Selten and Ockenfels 1998), adding collective choice of tax rates and evasion possibilities to the basic experimental design. The results are generally supportive of a various theoretical approaches that extend the traditional model of economic behaviour by including intrinsic motivation and / or other-regarding preferences. In particu-lar, (a) for the scenario replicating the original solidarity game, results are very close to the findings reported in Ockenfels (1999); (b) replacing individual charity with collectively determined taxation is not associ-ated with an increase in contribution rates when there is just one loser (the number of recipients is fairly small); (c) the main effect seems to be that under taxation, there are fewer "extreme" responses – no gifts or very generous ones – than in the charity régime; (d) although there is substantial evasion in both treatment groups where subjects could hide prizes, a fair number of subjects do not evade at all, which is in-consistent with the standard "portfolio" model of rational tax evasion; (e) when subjects can vote on tax rates, they evade significantly less than in the reference group with exogenous taxation; (f) all the same, we fail to identify an "alienation effect" linking tax compliance to the degree of conformity between individual preferences and group choices. JEL classification numbers: J3, H26 * Wirtschaftswissenschaftliche Fakultät, Universität Passau. I am indebted to the usual suspects, most prominently Reinar Lüdeke and Hanjo Allinger, for useful comments on a previous draft of the paper. Ekkehard Trümper provided very effective research assistance. The responsibility for all errors and omissions remains my own, of course.