With the growing recognition that using deterrents to prevent informal work and incentives to encourage formal work is a costly and ineffective way to promote formalisation, many governments are seeking to pursue the 'softer' approach of engendering a culture of commitment to formality through educating people about the reasons for paying taxes, showing populations what they receive for paying their taxes, etc. Until now, however, there has been little discussion of what works and what does not, and whether there are 'good practice' approaches that could be more widely adopted. Given that this seems to be the current direction of policy on tackling the informal economy, we need to discuss and identify how this can be done in practice. In doing so, we might be able to identify some practical measures governments and other social partners can adopt to engender this culture of commitment to formality.
Dear Colin Williams,
Thank you very much for opening such an important heading.
There are many factors that might be considered. One way to look might be to know how people evaluate public spending. When they think that governments allocate public sources to mostly needed areas tax morality of population then would be partially improved.
I have a paper dealing with what factors play roles in tax evaiton behavior of taxpayer. It can be seen http://dx.doi.org/10.3968%2Fj.ibm.1923842820130602.1085
Regards
Thank you very much for details of your paper. That is very interesting. What is really needed now is for case studies of good practice in terms of 'marketing' campaigns. What works and what does not in terms of persuading the population to pay their taxes. is it:
- campaigns to inform purchasers of informal goods and services of the negative impacts
- campaigns to inform informal workers of the negative impacts
- campaigns to informal purchasers of the beneficial impacts of purchasing formally
- campaigns to inform informal workers of the benefits of working formally
This is a tough Q to answer. Reasons vary for the rich and the average earning person. The perceived disconnect between public spending and the services received is a big reason. For the average earning Indian (low income) I suspect the concept of 'tax' itself is not clear.
Apart from your perception about the use of public funds by the government, which is most certainly an important factor in this connection, what I have found that there is a significant part of your tax morality which is rather undermined by the tax morality of your customer who at times does not want a formal receipt of purchase for his own benefits and hence bear an adverse effect on your personal tax morality as well. Then how much you respect the prevailing law also has a strong correlation with how much it is respected by your neighbouring shop/factory and ultimately by the whole market/industry. So it is very much a possibility that despite having a positive perception about how the public finds are invested by the government, you are strongly influenced by the demands and practices of your customers and competitors respectively.
Please find attached a recent paper published arising out of this discussion on the tax morale of the Croatian population and what might be done to improve tax morale.
Colin
Although it is a question asked a while, I would add two issues. One is the study we've done since the tax Observatory of the University of Murcia in which it is shown that the tax education has an effect on tax awareness. Another, that trust in public institutions also produces an increase in such awareness.
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