Leveraging Mental Accounting to Mitigate Tax Aversion and Evasion
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tax psychology
tax aversion
tax evasion
tax avoidance
mental accounting
Behavioral Economics
Public Economics
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Abstract
Taxes are a critical part of funding vital public services; however, many taxpayers strongly dislike paying taxes, demonstrating substantial tax aversion that can lead to tax evasion, exacerbating the pre-existing ‘tax gap’. Through a three-phase experiment consisting of a real-effort task, tax-filing simulation, and post-experiment questionnaire, this study examined the effect of a mental accounting treatment on mitigating tax aversion attitudes and tax evasion behaviors, as well as its impact on both voluntary and enforced tax compliance measures. The study found that participants who were exposed to a mental accounting treatment were more likely to honestly report their taxes and engage in mental accounting behaviors. However, the treatment did not affect the likelihood of complete evasion, increase the percentage of the total tax owed that was paid, or affect voluntary and enforced tax compliance measures. Potential implications of and explanations for these outcomes are discussed.