Behavior of tax payer: a further development of the slippery slope framework

Abstract

The paper is devoted to the slippery slope framework for modelling of tax compliance (Kirchler, Hoelzl, Wahl, 2008). The slippery slope framework assumes that tax payments are influenced by two key variables: trust and power. If both trust and power are at minimum level, tax payments are assumed to be low. When trust in authorities increases, tax payments are also assumed to increase. If power of tax authorities increases, tax payments are expect to increase as well. According to this paradigm voluntary compliance depends primarily on trust in authorities, whereas enforced compliance is a function of the power attributed to authorities. The slippery slope framework describes undoubtedly well the tax compliance in the western countries where the state authorities function properly and where the state institutes enjoy quite high trust by the citizens. But a problem is that this framework may show some deficit outside of the western reality, e.g. when someone tries to model the tax compliance in the states with continuous explicit distrust to the state authorities and for the state authorities with low-power. So, one has to develop a paradigm that properly models the tax compliance not only in the western states, but also in the developing states including the states from the post-soviet space and other authoritarian regimes. In our model we propose a replacement of the power and trust axes by the axes of power-balance and an axe of distrust-trust. The initial slippery slope framework (Kirchler, Hoelzl, Wahl, 2008) relies on the power as instrument, that state unilaterally applies to a tax-payer, and has no encounter for the power of taxpayer. The power of taxpayer is to understand as ability to impact on state officer, on local or regional tax-authority, and on the members of family of tax-officer. Such impact is often illegal, but real and may be quite efficient. It is the case especially if a tax-payer himself or his companions or relatives hold a high position in state service. So, in our model we consider the power of taxpayer and assume that the balance of tax-authority-power and taxpayer-power predefines the resulting tax compliance. If balance of power between taxpayer and tax authority increases, tax payments are expect to decline. It happens not only because the tax authority does not have enough power to inforce law, but also because taxpayer has enough power to prevent application of law. The initial trust-axe should be also extended from explicit distrust to the trust as positive attitude. There are many countries in the world where the state authorities are distrusted by the citizens. A distrust of taxpayers is an attitude that essentially contributes to their interaction with tax-authority. It induces readiness to tax avoidance and evasion. The proposed replacement of the axes leads to an extension of the slippery slope framework, so that it describes the tax-payer behavior also in the developing countries with the authoritarian and totalitarian forms of governing. Such extension may be relevant also for historical modelling of tax-payment culture, e.g. from the middle age Europe ruled by authoritarian sovereign till the modern democratic Europe with high percentage of voluntary, conscious tax-payers and with transparent usage of the collected taxes.