Abstract
Authorities rely on reports from private citizens to detect and enforce more than a trivial portion of effective law-breaking. The present article is the first to study the cultural aspect of peer reporting experimentally. By collecting data in a post-Soviet country (Moldova), we focus in particular on how the Soviet legacy of using citizens as private informants may have a long-lasting effect on their willingness to cooperate with state authorities. We then contrast those effects with peer reporting behavior in France, a Western society. Our results suggest that participants in Moldova view cooperation with authorities as less socially acceptable than their counterparts in France. Our results also suggest that participants in Moldova engage less frequently in peer reporting than individuals in France. However, we also find that less peer reporting does not necessarily imply less tax compliance. Participants in both countries exhibit very similar tax compliance rates. We explain the effect of peer reporting on tax compliance in Moldova using the country's past experience during the Soviet era, when being reported to authorities was common and carried grave consequences.
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Notes
As noted in Pop-Eleches and Tucker (2017), while important similarities can be found between countries that formed the Soviet bloc, important differences also exist. First, post-Soviet countries entered into their periods of communist rule from different vantage points. Second, with the collapse of the Soviet Union, post-communist countries adopted different political arrangements and followed distinct economic policies. Third, countries have been exposed to communism to different degrees. Those three elements may affect the attitudes held by post-communist citizens. However, the present paper does not compare the consequences of Soviet communism’s legacy across post-Soviet countries. Our comparison is between a country that has been exposed to the rule of Soviet communism (Moldova) and one that has not experienced such a regime (France). What is of utmost importance herein is that the communist party’s active attempt to promote a surveillance mechanism that relied on peer reporting was not limited to one specific region in the Soviet space but was instead a general policy meant to contribute to the creation of a new ``Soviet man''.
Previous experimental studies have shown that subjects engage in tax evasion to some extent with a 40% tax rate, although an important share of individuals voluntarily choose to comply (Masclet et al., 2019). In addition, such a tax rate is similar to the tax rate for self-employed individuals in some countries (e.g., Denmark; see Kleven et al., 2011). Note that in all treatments, participants were not informed about how tax revenues would be spent. Thus, the taxes collected do not finance public goods or services and therefore do not generate any positive externality. That choice was motivated by three factors. First, in the baseline, we wanted to create an environment that strips away any strategic considerations. Therefore, we opted to have no local public goods provided as the result of the collected taxes. Second, we opted not to fund some global public good with the taxes collected (e.g., sending the money to a charity) because participants’ behaviors may have been influenced differently in the two countries as a consequence of our charity choice. Third, Masclet et al. (2019) found that information on how taxes are allocated (i.e., whether money is ``burnt'' or used to fund a global environmental public good) has no significant impact on tax compliance or peer reporting.
Because the legitimacy of the central authority has been shown to play an important role in experimental games studying compliance (Baldassarri and Grossman 2011), we wanted to minimize the possibility that the central authority in our experiment is seen as illegitimate. For that reason, we opted not to select one participant exogenously to play the authority's role. Thus, while some recent experimental studies have identified a randomly selected participant to act as the authority (Engel 2014; Espinosa et al. 2020), we elected to rely on the experimenter as most likely to be seen as a legitimate authority during the experimental session. Although participants received no additional information about the identity of the authority, previous experimental studies suggest that participants defer to the experimenter as the authoritative figure in the type of environment at hand (Karakostas and Zizzo 2016).
Empirical studies have shown that the probability of audit for self-reported income is generally low, which explains the high evasion rates for this type of revenue (Andreoni et al., 1998; Kleven et al., 2011). Indeed, tax enforcement authorities have limited resources and can only audit a small number of individual declarations. Furthermore, in some countries, there may be a gap between the auditing probability and the probability of being punished for deviant behavior stemming from the corruption of law enforcement agents.
We implemented the norm elicitation questionnaire at the end of the baseline condition, because we needed our participants to understand the tax game without being exposed to the effective implementation of whistleblowing. The elicitation of norms in a treatment with effective whistleblowing during the game would have yielded biased stated opinions since participants' beliefs would have been influenced by their own whistleblowing decisions during the game. Also, we provided no feedback about others' behavior since empirical information can influence normative beliefs.
However, contrary to the original implementation, our elicitation procedure was not incentivized. Supporting evidence from Vesely (2015) shows that people provide virtually the same responses in incentivized and non-incentivized versions of the Krupka and Weber game.
We performed a post-hoc power analysis using the statistical power analysis program G*Power (it is a free-to-use software used to calculate statistical power). In line with our statistical analyses, as well as what’s customary in our field, our post-hoc analysis relied on a two-tailed Mann Whitney-U test at an alpha level of 0.05. For our two main outcomes, we obtained statistical power of 93.8% (Moldova: social observation treatment versus whistleblowing treatment) and 78.4% (France: social observation treatment vs. whistleblowing treatment), respectively. The percentages correspond to the probability of finding a statistical difference from 0 in our test (a “significant effect”) if there is a true difference to be found. Thus, we were satisfied with the effect sizes that our treatments yielded. Note that a power calculation comparing the whistleblower treatment in France to that in Moldova cannot be performed because the means were essentially identical and thus would yield an effect size of zero, which would indicate a conclusive null result.
For example, in the extreme case of a participant endowed with 100 ECU who decides to declare no income, the expected gain is equal to (0.8 × 100) + (0.2 × 40) = 88, whereas the equivalent earning in case of compliant behavior is 60.
On political influences on tax law enforcement in the United States, see Shughart et al. (2001).
Note that we cannot exclude that prior experience with the Soviet citizen-based surveillance policy (directly or indirectly through, for example, parental teaching) may make present day citizens condemn peer reporting less (not more). However, Fitzpatrick’s (1996) work cited in the introduction showing that the 1980s witnessed an open condemnation of previously considered heroes who reported colleagues or family members to central authorities suggests that the practice would be viewed as more repugnant in the present day post-Soviet countries.
The responses “somewhat socially unacceptable'' and “very socially unacceptable'' have been pooled together. The results are similar if we consider each response option separately. See Appendix B for a graphical comparison of beliefs in the two countries by each response option.
It seems that subjects in the two countries judge it to be more socially unacceptable to report someone who declared a very small share of his/her income than reporting an individual who declared an amount that is close to full compliance. Although that seems puzzling and we are not able to provide a clear explanation, what matters for our paper is the difference between the two countries instead of the within-country differences when looking at various tax declaration levels.
The variable of interest is the percentage of income declared by the subject. By design, that variable is left-censored at 0 and right-censored at 100. The censored values represent 27.98% (left) and 34.62% (right) of the observations for France and 22.44% and 31.59% for Moldova, respectively. Therefore censored data models are required. In order to take into account the groups, we chose to rely on mixed-effects Tobit models, with random intercepts on groups and participants, and robust standard errors clustered at the group level. Multilevel modeling allows many levels of clusters and their inter-dependencies to be considered, so as to better determine where the statistical effects come from. That kind of model, with a mix of fixed and random effects, is particularly well-adapted to the data collected in the lab, when several levels of interdependencies exist (Moffatt 2015). As a robustness check, we also estimated ordinary least square regressions (OLS) and found very similar results (Table 4 in Appendix B).
A separate regression with “country'' and "treatment" as independent variables shows that the whistleblowing treatment significantly increases tax compliance compared to the social observation treatment regardless of the country where the experiment was conducted.
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Acknowledgements
For valuable comments, we wish to thank two anonymous referees and the editor, William F. Shughart, as well as Erik Kimbrough, Antoine Malézieux, Andrea Guido, participants at the ESI seminar (Chapman University), the Computational Justice Lab seminar (Claremont Graduate University), and the 2019 Norms and Behavior Change workshop (University of Pennsylvania). Financial support was provided by the Expert-Grup independent think-tank, Chisinau, Moldova.
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Romaniuc, R., Dubois, D., Dimant, E. et al. Understanding cross-cultural differences in peer reporting practices: evidence from tax evasion games in Moldova and France. Public Choice 190, 127–147 (2022). https://doi.org/10.1007/s11127-021-00925-7
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DOI: https://doi.org/10.1007/s11127-021-00925-7