The Experimental method and Rational Economic Man:

A Perspective from Economic Psychology

Alan LewisDepartment of Psychology

University of Bath

a.lewis@bath.ac.uk

The empirical part of this paper is based on:

Individual, Cognitive and Cultural Differences in Tax Compliance: UK and

Italy compared (in preparation)

Alan Lewis, Sonia Carrera, John Cullis, Philip Jones

Questionnaire study based on 505 Italian psychology and economics students and 539 U.K. psychology and economics undergraduates.

Participants take on the role of a small trader declaring income of € 30,000.

Dependent Variable: amount of income declared

Independent Variables:1. Detection rates – Repeated measures 1%, 5%, 25%2. Instruction to maximise income or not (between subjects)3. Framing effects (between subjects)4. Degree studied5. Gender6. Country (culture)

The influence of detection rates, culture, framing, instrumentality, gender and degree choice on tax

compliance*

*Not to be reproduced without permission

ANOVA resultsa DF F Prob > F

Source Within subject factors

detection 2 231.95 <.000

detection x sex 2 12.07 <.000

detection x degree 2 6.47 .002

Detection x instrumentality

2 5.38 .005

Between subject factors

Country 1 10.31 .001

Degree 1 31.46 <.000

Framing 1 10.18 .001

Instrumentality 1 1.89 .169

Gender 1 15.82 <.000

Degree x instrumentality 1 4.12 .043

External Validity and Justifications

Tax evasion is covert Calculation of the extent of tax evasion is indirect Tax compliance is a mystery (given REM) Hypothetical experiments, simulations, self descriptions

of behaviour all become highly relevant in these contexts

I would not wish to claim the tax compliance figures derived from the study are a reflection of ‘reality’. Many reasons for this:

1. Hypothetical questions2. Nature of sample3. Repeated measures design for ‘detection’4. Perceptions of audit rate

What I would claim to be true (and I believe has external validity )is:

Audit rates influence tax compliance People and cultures are different Men and people who study economics are more

instrumental Framing effects work Instructions to maximise wealth encouraged

psychologists to declare less, while economists behaved instrumentally whether they were asked to or not. Instructions to maximise wealth will be asking many participants to behave unnaturally.

References

Lewis, A. (1982). The psychology of taxation. Oxford: Blackwell

Cullis, J., Jones, P., & Lewis, A. (2006). Tax framing, instrumentality and individual differences: are there two different cultures? Journal of Economic Psychology, 27, 304-320

Lewis A., Carrera S., Cullis J., Jones P. (2008). Individual, Cognitive and Cultural Differences in Tax Compliance: UK and Italy compared (in preparation)