Erich KirchlerUniversity of Vienna, Austria

TARC Master ClassLondon - 2014

Tax Psychology (2)Social representations and

communication

22

Economic understanding of adults

Lay theories of economic relations (in contrast to expert knowledge of, for example, economists):• Are developed on the basis of daily experiences• Schematically simplified; stereotypes• Provide explanations and orientations for

behaviour

3

1. Knowledge about taxes

4

Complexity of tax law

Tax law is not always clear…

Slemrod et al. (2001, p. 459): “… although one can assert that legality is the dividing line between evasion and avoidance, in practice the line is blurry; sometimes the law itself is unclear, sometimes it is clear but not known to the taxpayer, sometimes the law is clear but the administration effectively ignores a particular transaction or activity.”

Tax law is not always clear…

Owens & Hamilton (2004) collected experiences and innovations in taxation in various countries. They state that in OECD countries, one of the major problems in tax administration is what tax administration has to administer, the tax laws and how to interpret them (complexity, ambiguity, incomprehensibility of the law). Tax laws have become so intricate that even experts, such as accountants, attorneys, and tax officers have difficulty interpreting many of the law’s provisions.

Owens & Hamilton (2004) report that the number of words in the IRS Code (Income tax law, and entire tax code) increased steadily from 1955 to 2000.

61955 1965 1975 1985 1995 2000

0

200

400

600

800

1000

1200

1400

1600

1800

Income taxes only

Entire tax code

Thousands of words

Growth in number of words in the IRS Code from 1955 to 2000; adopted from www. taxfoundation/org/compliancetestimony.html; quoted in Owens and Hamilton (2004)

7

Tax law is not always clear…

Moser (1994) undertook a linguistic analysis of tax laws and claims several bad habits which make it difficult for ordinary taxpayers to understand the law.

Lewis (1982) reports that the necessary education to understand the law is between 12 and 17 years in USA, UK, and Australia, respectively.

Readability is the ease with which text can be read and understood. Various factors to measure readability have been used, such as "speed of perception," "perceptibility at a distance," "perceptibility in peripheral vision," "visibility," "the reflex blink technique," "rate of work" (e.g., speed of reading), “eye movements” and fatigue in reading.“The Flesch formulas: Flesch-Kincaid readability test

8

Tax laws are not always clear…

Efforts to simplify the law are undertaken in almost all countries.

“I hold in my hand 1,379 pages of tax simplification.” U.S. congressman Delbert L. Latta

9

Subjective knowledge

Tax law is complex. Sakurai & Braithwaite (2003) found in an survey with more than 2,000 Australian taxpayers that a relatively small percentage of respondents described themselves as fully competent: 36% denied fully the question, “I feel competent to do my own income tax return.”, 26% indicated to feel a little competent, 25% a fair bit, 12% very much.

It is not surprising that more than three thirds rely on tax agents, 6.5% on tax office staff, and 20% on other people.According to Blumenthal & Christian (2004) close to 60% of the 128 million individual income tax returns in the USA filed for tax in 2001 were signed by a preparer.

10

Poor understanding of tax law, taxation and tax rates breed distrust.

Low tax knowledge is correlated with low compliance.

Using education as a proxy for tax knowledge, it was found that higher education correlates with compliance (Kinsey & Grasmick, 1993; Song & Yarbrough, 1978; Spicer & Lundstedt, 1976; Vogel, 1974). Schmölders (1960) reports in his influential study on tax morale in Germany that agreement with governmental activities and fiscal policy was higher in higher educated groups.

Several survey studies found a positive relationship between (subjective or objective) tax knowledge and attitudes towards taxes and fairness assessments (Cuccia & Carnes, 2001; Kirchler & Maciejovsky, 2001; Niemirowski et al., 2002; Park & Hyun, 2003)Kirchler, Maciejovsky & Schneider (2003) assessed tax knowledge of fiscal officers, students of economics and business administration, business lawyers, and entrepreneurs, using a multiple choice test consisting of ten items, and correlated their knowledge with fairness judgments of tax avoidance, tax evasion and tax flight. Tax knowledge was neither correlated with the perceived fairness of tax evasion nor with the perceived fairness of tax avoidance. However, for business lawyers and entrepreneurs it was found that profound tax knowledge is positively correlated with perceived fairness of tax avoidance, indicating that the better the knowledge the fairer was tax avoidance perceived.

11

2. Representations of taxes

12

Representations of taxes

Fynantzer = Landbetrieger, der die Leute umbs Geld bescheisset

Basilius Faber, 1680Thesaurus editionis scholasticae

Tax inspector = Impostor who screws people for their money

Representations of taxes

Peter Sloterdijk (2010)

“The modern democratic state gradually

transformed into the debtor state...

This metamorphosis has resulted,… , from

a prodigious enlargement of the tax base –

most notably, with the introduction of the

progressive income tax…

… each year, modern states claim half of

the economic proceeds of their productive

classes and pass them on to tax collectors,

and yet these productive classes do not

attempt to remedy their situation with the

most obvious reaction: an antitax civil rebellion.”

Attitudes and tax morale

Schmölders (1960):Tax morale is the “attitude of a group or the whole population of taxpayers regarding the question of accomplishment or neglect of their tax duties; it is anchored in citizens’ tax mentality and in their consciousness to be citizens, which is the base of their inner acceptance of tax duties and acknowledgment of the sovereignty of the state.” (p. 97f).

Bruno Frey & Benno TorglerTax morale = intrinsic motivation to comply

16

□

□

□□□□□

□□□

□ □□

□ □□

Italy

Belgium

PortugalSpain

Sweden

Norway

FinlandNetherlands

IrelandFrance

Switzerland

GermanyDenmark

Great BritainAustria

USA

0

10

20

30

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Degree of Tax Morale

Siz

e of

Sha

dow

Eco

nom

y (in

% o

f the

GD

P)

Attitudes drive behavior (Schmölders: tax morale)

Tax morale and size of shadow economy (Alm & Torgler, 2005)

1717

Lay theories

Lay theories are often explained on the basis of the Theory of Social Representations (Moscovici, 1981)

1818

Social representations[...] a system of values, ideas and practices with a

twofold function; first, to establish an order [...] and secondly to enable communication to take place among the members of a community [...] (Moscovici, 1961/1973)

• „Common-sense-theories” on fundamental issues that are of concern to the community (Moscovici & Hewstone, 1983); everyday knowledge

• Combine psychological and sociological elements (social groups, strata)

1919

Definition: Wagner (1994)Social representations are …: Metaphoric images, representations, conceptions of socially relevant phenomena; often pictographically-symbolically, linguistically expressed; unite cognitive, affective, evaluative and conative aspects Perspective of individual knowledge-systemsFormation processes, change-dynamics and elaborations in social interactions, in everyday discourse, in social/societal discourse Perspective of collective discourseA concept, which makes it possible to refer social and individual analysis-systems to each other and to explain how social processes lead to individual, socially grounded representations

Perspective of „macro-reduction of individual knowledge systems to social processes”

2121

Social representations comprise:• Core: determines the meaning and identity of a social

representation and consists of explicit or implicit fundamentals of the representations

and• Periphery: protects the core, to adjust the social

representation to context and time.

Social representations develop through:• Anchoring: The unfamiliar is classified and ascribed with a

meaning. • Objectification: The abstract concepts are turned into

something concrete and assume real respectively physical representations (e.g. the word „bravery” is envisaged as a hero)

22

Society,social groups

Threatening or unfamiliar phenomenon or event (e.g. implementation of the Euro, publication of the theory of psychoanalysis)

Collective examination, search for related contents, copies etc.

Anchoring to and interpretation on the basis of familiar contents and representations.

The social discourse leads to objectification, i.e. to representations in the form of pictures, metaphors, symbols, etc.

The unfamiliar phenomenon becomes familiar and part of common sense

Novel social representation

Social identity

The “world” of the society or social

group is enriched by a novel

representation

The novel representations adds to the social identity

of the society or social group

Sociogenesis of social representations (Wagner et al., 1999)

2323

Attitudes

Allport (1935, p. 810): “A mental and neural state of readiness, organised through experience, exerting a directive or dynamic influence upon the individual’s response to all objects and situations with which it is related.”

Stroebe (1980): Attitudes towards an attitude object consist of

The opinions on the object (cognitive aspect)

The sympathy (affective aspect) and

The behavioral intentions (conative aspect).

2424

AttitudesThomas (1991)

Affect

Cognition

Behavior

Attitude object (people, social

groups, situations, actions etc.)

Measurable independent variable

Intervening variable

Measurable dependent variable

Attitude

Reactions of the autonomic

nervous system; verbal comments

on emotions

Perceptual judgments; verbally uttered

opinions

Manifest behavior; information on own

behavior

2525

Attitudes and behavior

Attitudes cannot be observed directly, but represent a relevant basis of behavior.

26

Measuring attitudes

• Psychobiological level: – E.g. pulse rate, electrodermal responses, ECG, EEG,

fMRI (neuro-economics)– Registration of eye movements (search of information

sequence of information search):

„Spotlight – Viewer”: Selective attention of the consumers while watching advertisements

Advantage: Little technical, financial, organizational, and temporal effort in comparison to classical eye-tracking

Information search: the spotlight-viewer (…rather than eye tracking) (Berger, 2009)

E.g., experiments on information search (audit probability, fines, social norms…)

2828

Measuring attitudes

• Behavioral observation – E. g., “lost letters”

• Surveys and interviews – Qualitative methods (e.g. in-depth interviews)– Quantitative methods (e.g. direct surveys)– Combined methods (e.g. associations)

2929

Qualitative methods

• In-depth interview: Collection of associations with the “object”: inquire all “object” attributes that are deemed important and then analyze the cognitive structure that lies behind them by repeatedly asking “why-questions”

• Focus groups: The interaction provides an insight into complex behavioral patterns and personal motives: host, video or audio recordings

• Qualitative-quantitative method: Associative network (see below)

3030

„Direct” attitude measurement

How do you rate taxes [VAT, income tax, etc.]?

Remember: Not the attitude per se is measured “directly”, but the verbally uttered opinions are inquired directly.

Very bad Bad Neither Good Very good

Quantitative methods

3131

Likert’s method of added ratings

Attitudes as disapproval or approval of an attitude object

Development of the scale:• Collection of favorable and unfavorable statements• Multi-point rating of agreement – disagreement• Item analyses & selection, administration of the scale • The added score of the answers represents the attitude

index

3232

Likert method – an example

Paying taxes on time is a citizen’s duty

Cheating on taxes is a minor crime

Strongly agree

Strongly disagree

1 2 3 4 5

5 4 3 2 1

3333

Multi-attribute-models

Fishbein (1963), Fishbein & Ajzen (1975): • Only few object features/traits are

perceived• Attitude as a function of the subjective

probability and evaluation of these traits

Aij = 1/n * ∑ (Pijk * Eijk)k=1

n

Probability that k is present

Evaluation of trait k

3434

Multi-attribute-models - exampleTrait of X How likely is this trait? How do You evaluate

this trait?

Unlikely Likely Bad Good

honest

responsible

1 7 1 7

Attitude = 1 / 2 * ( (3 * 5) + (5 * 1) ) = 10

„safe” „expensive”2 mentioned

traits

35

Not wrong A bit wrong Wrong Seriously wrong

Attitudes towards taking undue benefits and not declaring income (bar charts indicate percentages of judgments of morally wrong behaviour, lines indicate percentages of people who might show the behaviour; adopted from Orviska and Hudson (2002, p. 91)

Total sample

Sample below 40 years

0%

10%

20%

30%

40%

50%

60% Taking undue benefits Not declaring income

Morally wrong (bar charts)Not wrong A bit wrong Wrong Seriously wrong

Very likely Fairly likely Not very likely

Not at all likely Very likely Fairly likely Not verylikely

Not at all likely Would do(lines)

Representations of taxes

Although most citizens appreciate public goods and agree with policy regulations, people neither like to pay taxes to fund public goods nor to pay so called corrective taxes.

People like public goods but claim taxes are too high!

3737

TaskTAX-I

38

3939

Semantic differential („classic” method; Osgood, 1970)

ActiveGoodUglyFast

WeakBig

PowerfulFriendly

…

Passive BadBeautifulSlowStrongSmallPowerlessUnfriendly…

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

1 2 3 4 5 6 7

Potency

Activity

Valence

A B

4040

Semantic differential (description vs evaluation; Peabody, 1985)Basic idea: separation of the evaluative and descriptive components

Example: Description of the manner/demeanor of a company on the market via pairs of traits such as prudent/imprudent, timid/bold Use of prudent or bold→ Evaluation of the company is positiveUse of timid and imprudent→ Evaluation of the company is negative Use of prudent or timid→ Description of the company as risk-averseUse of bold or imprudent→ Description of the company as willing to take risks

4141

Evaluative aspect = (scale a + scale b) /2Descriptive aspect = |scale a – scale b| /2 or reverse one scale

X evaluative aspect = (1 + 3) /2 = 2 descriptive aspect = (-1 + 3)/2 = 1

thrifty +3 +2 +1 0 -1 -2 -3 extravagant

stingy -3 -2 -1 0 +1 +2+3

generous

X

thrifty +3 +2 +1 0 -1 -2 -3 extravagant

stingy -3 -2 -1 0 +1 +2+3

generous

Y

Y evaluative aspect = (-1 + -1) /2 = -1 descriptive aspect = (1 + -1)/2 = 0

Semantic differential (description vs evaluation; Peabody, 1985)

4242

Analyses: • Content of the associations • Evaluation (+/0/-): “polarity index”, “neutrality index”• Sequences: in combination with the frequency of “core” and “peripheral” • Links

Too high 1 -

Unjust 5 +

Burden 2 +

Necessary 3 0

Theft 4 -

Evil 6 +

Associative network (de Rosa, 1993)

TaskTaxes

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

- 0 +

Semantic Differential

Honest taxpayers are…

Tax evader

Tax evader

Tax evader

Honest taxpayer

Honest taxpayer

Honest taxpayer

44

Lazy versus hard-working

Stupid versus intelligent

Typical taxpayer

Honest taxpayer

Tax evader

Typical taxpayer

Honest taxpayer

Tax evader

Negative versus positive evaluation

Typical taxpayer Honest taxpayer

Descriptive dimensions

Evaluative components

Judgments of “typical taxpayers”, “honest taxpayers”, and “tax evaders” (Semantic Differential - Peabody)

Tabl

e 1:

Jud

gmen

t s o

f tax

paye

r s (

valu

es r

ange

from

-3

t o +

3)  D

escr

ipt iv

e di

men

sion

st y

pica

l tax

hone

st t a

xt a

x ev

ader

paye

rpa

yer

__

____

____

____

____

____

____

____

____

____

____

____

____

___

16.la

zy -

har

d-w

orki

ng. 3

6 a

1.46

b

. 52

c17

.stu

pid

- in

tel li

gent

- .

22 a

. 24

b 1.

10 c

  Tabl

e 2:

Eva

l uat

ive

com

pone

nts

of r

atin

gs o

f tax

paye

r s b

y em

plo y

men

t gr o

up  t y

pe o

f tax

p aye

rbl

ue- c

oll a

rw

hite

- col

l ar

civi

len

t re-

stud

ent

t ota

l

wor

ker

wor

ker

ser v

ant

pren

eur

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

____

_ __

_ t ypi

cal t

axpa

yer

- .28

- .56

- .26

- .43

- .44

- .38

hone

st t a

xpay

er. 3

1. 3

0. 7

0. 3

3. 3

2. 4

0t a

x ev

ader

. 10

. 14

- .06

- .03

. 31

. 08

Taxevader

4545

BLUE COLLAR WORKERS

Public deficit

Criticism of the government

Associations to taxes of entrepreneurs, civil servants, students, white, and blue collar workers (explained variance: Dimension 1 = 38%; Dimension 2 = 30%; Dimension 3= 17%; Kirchler, 1998)

Dim

ensi

on

2

Dimension 3Dimension 1

1.50

-.690 -.80

0.86

-1.36

-.77

0

.89

Lack of clarity Technical tax termsEconomic regulator

Not categorized

BureaucracyNames of politicians and political institutions

Punishment and disincentive

Tax evasionNecessary evil

Social security

Social welfareSocial justice

CIVIL SERVANTS

Salary and income

Financial loss

Criticism of politicians

Instrument for politicians

Public goods

Public constraintSTUDENTSENTREPRE

NEUERS

WHITE COLLAR WORKERS

4646

Attitudes and behavior

• Hidden measurment:• Haire (1950): Customers complained about the

taste and smell of the novel product instant coffee. Judgments were seen as “rationalizations”, a negative attitude was suspected. Indirect method: Construction of two shopping lists of a hypothetic housewife, description of this housewife

4747

Indirect attitude measurement (Haire, 1950)

½ kg bread1 kg sugar

1 pack coffee beans2 kg apples

1 salami1 head of lettuce

½ kg bread1 kg sugar

1 pack Nescafe2 kg apples

1 salami1 head of lettuce

Described as „lazy”, „ill planning”, „wasteful”, „with little sense of family”

4848

Indirect attitude measurement

Imagine an entrepreneur who is

married, with two children, runs a firm…

evades taxes.

Imagine an entrepreneur who is

married, with two children, runs a firm…

avoids taxes.

Imagine an entrepreneur who is

married, with two children, runs a firm… pays on time correct

taxes.

Describe the entrepreneur, the personality, etc.