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

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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.

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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.

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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.

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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

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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.

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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.

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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.

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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.