Understanding Taxpayer Behaviour – New Opportunities for Tax Administration

Abstract

There is a growing literature on the contribution of behavioural economics to the design and improvement of tax policy. A less well-developed area is the potential for behavioural research
to contribute to better tax administration. Better understanding of the motives of taxpayers and their attitudes and behaviour towards taxation can improve both voluntary compliance and the efficiency of the tax administration. The literature suggests tax compliance is determined by five broad factors: deterrence; norms (both personal and social); fairness and trust (in the tax
administration); complexity of the tax system; and the role of government and the broader economic environment. Research in Ireland suggests that deterrence, the more traditional tool of
tax administrations, is important but not sufficient to explain the level of tax compliance in society. Other factors are shown to be important, particularly the influence of personal norms and the level of trust in the tax administration. Perceptions of the prevailing social norms are also important determinants of compliance but appear to exert less influence on taxpayers than personal norms. The experiences of tax administrations in using behavioural research to influence taxpayers are examined and work in this area in Ireland is outlined.