Can tax be cultural? The answer is a definitive “yes.” Whether we pay our tax happily and on time, or try to avoid paying it at all, can be determined not only by our personal characteristics, but also by where we come from.
These differences in tax culture have been described in many different branches of research, including psychology, economics, and sociology. In the early days, this work focused less on the behaviours of people, and more on why tax systems varied from place to place.
“A country-specific tax culture is the entirety of all relevant formal and informal institutions connected with the national tax system and its practical execution, which are historically embedded within the country’s culture, including the dependencies and ties caused by their ongoing interaction.”
Research into tax culture covers a surprisingly wide range of topics. These include:
• how tax systems have developed historically
• attitudes of authorities to modes of tax collection
• the compliance of businesses and individuals with taxation legislation
• general attitudes towards taxation.
Particularly interesting is how changes in taxation legislation or procedures can result in “tax culture shocks” which can result in “tax culture lag,” defined as a delay between changes in taxation and people’s adjustment to them.
Tax compliance: more than good intent
From the perspective of authorities, one of the most important issues in taxation is compliance. Compliance is not only a matter of fraud prevention and policing, but also of procedural design. Tax systems can appear quite complex to ordinary people. Even if people intend to comply with tax laws, they may not actually comply, if they do not understand the tax system well enough or if it involves too much red tape.
To make things even more confusing, cultural interpretations of what tax laws mean and what tax behaviours are acceptable differs from place to place. In one study, Tsakumis, Curatola and Porcano use Hofstede’s national cultural dimensions to demonstrate the effects of national culture on tax evasion across countries. They explain:
“policymakers should consider cultural values when designing tax compliance legislation and investigating possible behavior irregularities. Some of the tax compliance penalties that work well in the U.S. may not work well in countries with different cultural profiles.”
In other words, people view tax laws as open to interpretation, and respond differently to incentives to comply.
This viewpoint is also upheld by Cheunjit, whose review of literature on taxpayer culture looks at a broad range of issues from the vantage point of the individual or household and the authorities. At the consumer level, issues include:
• compliance culture
• incentive to pay taxes
• ethics and norms of taxpayers
• perceptions of taxpayers towards the tax system and tax authorities
• rights and participation of taxpayers
• socio-demography of taxpayers
At the level of the authorities, issues include:
• enforcement culture
• tax law and policy
• organizational structure
• quality of tax institutions
• tax reform
Cheunjit points out that the relationships between individuals / households and the authorities matters, and that trust and fairness emerge as major issues in this relationship. Moreover, tax cultures do not stay stable:
“the culture of taxation may change over time when the needs of society in each period change in order to maintain the tax system. As culture can be acquired from other individuals via social transmission mechanisms such as learning and imitation, the way people or organizations act will change as the tax environment changes.”
Despite this, very little research goes beyond the question of “compliance” to examine people’s relationships with tax systems more broadly. Cheunjit recommends more qualitative research into how people actually think about taxes; research aimed at finding out whether specific policies might work, and also research into knowledge management in tax administration and education.
The best-researched example of decision-making surrounding taxation concerns the issue of “tax morale,” which can be defined as personal attitudes towards paying or avoiding tax. Many organizations globally produce rankings of nations based on their willingness to pay or avoid taxation.
For example, the OECD reports that positive attitudes towards taxes are correlated with a wide range of factors, including trust in the government, preference for democracy, religion, gender, age, education, and whether employment is full-time or part-time. The level of influence that these factors has on tax morale varies from region to region:
“For example, support for democracy in Africa and Eastern Europe has a stronger correlation with tax morale than in North America, while trust in government in Asia and Africa has a weaker link.”
However, they note, there are also significant intraregional variations, so it is important to also look at the country level.
In their 2006 study of the effects of cultural differences and tax morale, Alm and Torgler found significant differences in attitudes across the EU, with tax morale ranging from around 38% in Belgium to 61%in Austria. They note that one area of impact is in the “shadow economy”; that is, tax avoidance.
In 2004, Torgler and Schneider used World Values Survey (WVS) and European Values Survey (EVS) data to investigate the link between culture and tax morale within countries, looking at Belgium, Spain, and Switzerland. They argue that looking at differences within countries might be a better way to isolate the effects of culture on tax morale, since people living within the same country should be subject to the same rules and procedures. They report:
“the cultural background seems not to have a strong effect on tax morale within a country. However, there is evidence that there is a strong interaction between culture and institutions, which has a strong impact on tax morale.”
In Switzerland, Torgler and Schneider found a strong interaction between culture and institutions, with direct democracy and trust in the legal system having a strong impact on tax morale across the board. In Belgium, the Flemish had lower tax morale than the Walloons, and tax morale also differed regionally within Spain. Despite difficulties isolating cultural effects, they argue:
“a government compliance strategy that goes beyond using the instruments of detection and punishment can reasonable help to improve tax morale and tax compliance.” (p.28)
In other words: people are more likely to pay their taxes if they have a good tax morale. Even if distrusting the tax system is part of “culture” – a habit that has been practiced for generations – tax departments can successfully raise compliance if they improve their customer service and start teaching people that they will not be punished for making ordinary human mistakes.
In Part II of this article, I explore the effects of tax on migration decisions.
Alm, J. and B. Torgler. 2006. Culture differences and tax morale in the United States and in Europe. Journal of Economic Psychology 27(2): 224-246.
Cheunjit, P. 2014. The culture of taxation: Definition and conceptual approaches for tax administration. Journal of Population and Social Studies 22(1): 14-34.
Nerré, B. 2008. Tax culture: A basic concept for tax politics. Economic Analysis and Policy 38(1): 153-167.
OECD. 2013. What drives tax morale? Tax and Development, March, p.4
Schmölders, G. 1959. Fiscal psychology: A new branch of public finance. National Tax Journal 12(4): 340-345.
Schneider, F., and B. Torgler. 2004. Does culture influence tax morale? Evidence from different European countries. No. 17. CREMA Working Paper Series.
Torgler, B. and F. Schneier. Does Culture Influence Tax Morale? Evidence from Different European Countries. Working Paper No. 2004-17. Basel: Crema.
Tsakumis, G.T., A.P. Curatola and T.M. Porcano. 2007. The relation between national cultural dimensions and tax evasion. Journal of International Accounting, Auditing and Taxation 16(2007): 131-147.