The effects of observing a peer's likelihood of reporting income on tax reporting decisions

Abstract

This study examines the influence of peers in the tax compliance setting using a social learning theory approach to investigate the effect of observing a peer's likelihood of reporting income. We also examine the role that gender plays in these decisions. We ask participants to estimate the likelihood of reporting income and to make a binary compliance decision in a setting where they are able to observe what they believe is another's response to a hypothetical tax reporting scenario. Participants who viewed the decision of a noncompliant peer were less likely to report honestly than those who viewed the decision of a compliant peer. This finding provides further evidence of a potential effect for peer influence. Consistent with prior literature, we find that women are more likely to comply than men, but do not find an interactive effect with peer observation. A supplemental experiment indicated that participants who believed their responses would be seen by a peer were less likely to report honestly than participants who believed their responses would remain private. This result, although counter-intuitive, is consistent with Wenzel's (2005a) description of a self–other discrepancy and conformance to a misperceived social norm.

Citation

Wartick, M.L. and Rupert, T.J. (2010), "The effects of observing a peer's likelihood of reporting income on tax reporting decisions", Stock, T. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 19), Emerald Group Publishing Limited, Leeds, pp. 65-94. https://doi.org/10.1108/S1058-7497(2010)0000019005