Policy Research

Tax Morale

Erzo F.P. Luttmer, Monica Singhal

Summary

The article examines Tax Morale (i.e. people’s attitudes towards taxes, and tax compliance) and attempts to determine both what causes tax morale to change, and what effect is has on overall tax compliance rates. The study examines a variety of studies and data on tax compliance and determines that tax morale is likely effected by perceptions of peer’s compliance, perceptions of social norms, and intrinsic motivations such as a feeling of duty to the country of residence. The study ultimately concludes, however, that to isolate the specific effect that tax morale has on compliance rates more research needs to be done. The article also estimates that tax morale is fairly inelastic, in the sense that people’s perceptions are not easily changed, and when they do change tend to stick.

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Policy Implications

This article can be useful in attempting to increase tax revenues. The article suggests that providing increased information on government or sending out tax payment reminders could increase tax compliance by some measure. There is also a suggestion that increasing taxes withheld will significantly decrease evasion, because people who receive larger refunds tend not to seek out as large of tax shelters. Finally, the article suggests that increasing overall public perceptions about the importance of taxes would increase compliance but would be very costly to do effectively.