Dishonesty When the Game Is Unfair
Experimental Evidence for the Effect of Economic Inequality on Tax Evasion and Cheating
Abstract
Abstract: Although the link between economic inequality and dishonest behavior is well-established in the literature, their causal relation is still unclear. Here we investigate the causal link between economic inequality and dishonest behavior in a simulated society with high or low economic inequality, while holding middle-class status of the participants constant across conditions. Study 1 (N = 479) focuses on tax evasion, showing that high (vs. low) economic inequality increases the tendency to not declare taxable income. Study 2 (N = 228) analyzes cheating behavior, showing that participants under high (vs. low) economic inequality cheat more to increase their income. Together, the studies provide experimental evidence that economic inequality plays a causal role in dishonest behaviors, such as tax evasion and cheating.
References
(2000). Relationship of subjective and objective social class with psychological functioning: Preliminary data in healthy White women. Health Psychology, 19(6), 586–592. 10.1037/0278-6133.19.6.586
(2020). Income underreporting and tax evasion in Italy: Estimates and distributional effects. Review of Income and Wealth, 66(4), 904–930. 10.1111/roiw.12444
(2004). Fighting poverty in the US and Europe: A world of difference. Oxford University Press.
(1972). Income tax evasion: A theoretical analysis. Journal of Public Economics, 1(3-4), 323–338. 10.1016/0047-2727(72)90010-2
(2021). 40 years of tax evasion games: A meta-analysis. Experimental Economics, 24(3), 699–750. 10.1007/s10683-020-09679-3
(2019). Tax evasion and inequality. American Economic Review, 109(6), 2073–2103. 10.1257/aer.20172043
(2020). Tax compliance and wealth inequality. Applied Economics Letters, 27(11), 899–903. 10.1080/13504851.2019.1646859
(2021). Tax evasion and inequality: Some theoretical and empirical insights. Economics of Governance, 22(4), 309–320. 10.1007/s10101-021-00261-y
(2017). Measuring the fiscal and equity impact of tax evasion: Evidence from Denmark and Estonia (No. 05/2017). JRC Working Papers on Taxation and Structural Reforms.
(2020). Size, heterogeneity and distributional effects of self-employment income tax evasion in Italy. EUROMOD Working Paper EM18/20. MEF. https://www.finanze.it/export/sites/finanze/.galleries/Documenti/Varie/Bazzoli-et-al._Evasion_DF_WP_ott-2020_0000-0001_merged.pdf
(2003). Tax evasion, income inequality and opportunity costs of compliance. Proceedings of the Annual Conference on Taxation and Minutes of the Annual meeting of the national Tax Association (Vol. 96, pp. 91–104). National Tax Association.
(2019). Economic inequality and risk-taking behavior. In J. JettenK. Peters (Eds.), The social psychology of inequality (pp. 223–237). Springer. 10.1007/978-3-030-28856-3_13
(2017). The psychological consequences of income inequality. Social and Personality Psychology Compass, 11(3), Article
e12304 . 10.1111/spc3.12304(2016). Income inequality is associated with stronger social comparison effects: The effect of relative income on life satisfaction. Journal of Personality and Social Psychology, 110(2), 332–341. 10.1037/pspp0000059
(2006). What explains tax evasion? An empirical assessment based on European data. Working Paper No. 40. Vienna Institute for International Economic Studies.
(2021). Tax evasion and government size: Evidence from Italian provinces. Economia Politica, 38(3), 1149–1187. 10.1007/s40888-021-00227-7
(2021). Wealth distribution and social mobility. Eurofound Research Report. https://www.eurofound.europa.eu/sites/default/files/ef_publication/field_ef_document/ef20034en.pdf
(1999). Subjective well-being: Three decades of progress. Psychological Bulletin, 125(2), 276–302. 10.1037/0033-2909.125.2.276
(2021). Income inequality reduces civic honesty. Social Psychological and Personality Science, 12(4), 537–543. 10.1177/1948550620929495
(2021). Material scarcity and unethical economic behavior: A systematic review and meta-analysis. 10.21203/rs.3.rs-800481/v1
(2009). Statistical power analyses using G* Power 3.1: Tests for correlation and regression analyses. Behavior Research Methods, 41(4), 1149–1160. 10.3758/BRM.41.4.1149
(1954). A theory of social comparison processes. Human Relations, 7(2), 117–140. 10.1177/001872675400700202
(2023, October 19). Dishonesty when the game is unfair: Effect of economic inequality on tax evasion and cheating [Data, Materials]. https://osf.io/j6cs9
(2020). The bright side of pessimism: Promoting wealth redistribution under (felt) economic hardship. PLoS ONE, 15(12), Article
e0243486 . 10.1371/journal.pone.0243486(1990). Employee theft as a reaction to underpayment inequity: The hidden cost of pay cuts. Journal of Applied Psychology, 75(5), Article
561 . 10.1037/0021-9010.75.5.561(2014). The impact of speeding on data quality in nonprobability and freshly recruited probability-based online panels. In M. CallegaroR. BakerJ. BethlhemA. S. GöritzJ. A. KrosnickP. J. Lavrakas (Eds.), Online panel research: A data quality perspective (pp. 238–262). Wiley.
(2005). The truth, the whole truth, and nothing but the truth: The causes and management of workplace lying. Academy of Management Executive, 19(2), 148–157. 10.5465/ame.2005.16965277
(2000). The impact of national culture on software piracy. Journal of Business Ethics, 26(3), 197–211. 10.1023/A:1006250203828
(2020). Who’ll stop lying under oath? Experimental evidence from tax evasion games. Europen Economic Review, 20, Article
103369 . 10.1016/j.euroecorev.2020.103369(2015). Relative deprivation and relative wealth enhance anti-immigrant sentiments: The v-curve re-examined. PLoS ONE, 10(10), Article
e0139156 . 10.1371/journal.pone.0139156(2019). The social psychology of inequality. Springer.
(2008). Inequality, public opinion and redistribution. Socio-Economic Review, 6(1), 35–68. 10.1093/ser/mwm006
(2008). Enforced versus voluntary tax compliance: The “slippery slope” framework. Journal of Economic Psychology, 29(2), 210–225. 10.1016/j.joep.2007.05.004
(2021). Economic predictors of differences in interview faking between countries: Economic inequality matters, not the state of economy. Applied Psychology, 70(3), 1360–1379. 10.1111/apps.12278
(2020). The economic and social consequences of tax havens in the world. In SHS Web of Conferences (Vol. 83). EDP Sciences. 10.1051/shsconf/20208301041
(2011). Voluntary versus enforced tax compliance: Empirical evidence for the “slippery slope” framework. European Journal of Law and Economics, 32(1), 89–97. 10.1007/s10657-011-9236-9
(2012). Do economic equality and generalized trust inhibit academic dishonesty? Evidence from state-level search-engine queries. Psychological Science, 23(4), 339–345. 10.1177/0956797611435980
(2015). Inequality and visibility of wealth in experimental social networks. Nature, 526(7573), 426–429. 10.1038/nature15392
(2011). Income inequality and happiness. Psychological Science, 22(9), 1095–1100. 10.1177/0956797611417262
(January, 2022). Inequality kills: The unparalleled action needed to combat unprecedented inequality in the wake of COVID-19. https://www.oxfam.org/en/research/inequality-kills
(2017). Economic inequality increases risk taking. Proceedings of the National Academy of Sciences, 114(18), 4643–4648. 10.1073/pnas.1616453114
(2015). Income inequality and health: A causal review. Social Science & Medicine, 128, 316–326. 10.1016/j.socscimed.2014.12.031
(2018). Corruption causes inequality, or is it the other way around? An empirical investigation for a panel of countries. Economic Analysis and Policy, 59, 92–102. 10.1016/j.eap.2018.05.001
(2019). Causality between income inequality and corruption in OECD countries. World Development Perspectives, 14, Article
100102 . 10.1016/j.wdp.2019.02.013(2020). Study and Reports on the VAT Gap in the EU-28 Member States: 2020 Final Report. CASE. https://ec.europa.eu/taxation_customs/sites/taxation/files/vat-gap-full-report-2020_en.pdf
(2016). When winning is everything: The relationship between competitive worldviews and job applicant faking. Applied Psychology, 65(4), 643–670. 10.1111/apps.12072
(2019). Economic inequality enhances inferences that the normative climate is individualistic and competitive. European Journal of Social Psychology, 49(6), 1114–1127. 10.1002/ejsp.2557
(2017). Exposure to inequality affects support for redistribution. Proceedings of the National Academy of Sciences, 114(4), 663–668. 10.1073/pnas.1615010113
(2021, September 7). The case for a robust attack on the tax gap. US Department of the Treasury. https://home.treasury.gov/news/featured-stories/the-case-for-a-robust-attack-on-the-tax-gap
(1998). The overspent American. Basic Books.
(2012). Financial deprivation prompts consumers to seek scarce goods. Journal of Consumer Research, 39(3), 545–560. 10.1086/664038
(2014). Financial deprivation selectively shifts moral standards and compromises moral decisions. Organizational Behavior and Human Decision Processes, 123(2), 90–100. 10.1016/j.obhdp.2013.09.001
(1973). Tax evasion: A model. Journal of Public Economics, 2(4), 339–346. 10.1016/0047-2727(73)90024-8
(2016). Income inequality and health: Strong theories, weaker evidence. Frontiers in Public Health Services and Systems Research, 5(5), 30–37. 10.1146/annurev-publhealth-032315-021606
(2020). Inequality – Bridging the divide. https://www.un.org/sites/un2.un.org/files/un75_inequality.pdf
(2008). Corruption and the inequality trap. In E. Uslaner (Ed.), Corruption, inequality, and the Rule of Law: The bulging pocket makes the easy life (pp. 23–57). Cambridge University Press. 10.1017/CBO9780511510410.003
(2015). Income inequality and status seeking: Searching for positional goods in unequal US States. Psychological Science, 26(4), 527–533. 10.1177/0956797614567511
(2009). Income inequality and social dysfunction. Annual Review of Sociology, 35, 493–511. 10.1146/annurev-soc-070308-115926
(2015). Legitimacy moderates the relation between perceived and ideal economic inequalities. Social Justice Research, 28, 493–508. 10.1007/s11211-015-0253-7
(2022). World Bank, Poverty and Inequality Platform. https://data.worldbank.org/indicator/SI.POV.GINI?locations=EU&most_recent_value_desc=true
(2005). The antecedents and consequences of top management fraud. Journal of Management, 31(6), 803–828. 10.1177/0149206305279598
