Abstract The experimental study presented here demonstrates that individual and situational factors are psychologically salient aspects in tax noncompliance. Specifically, a taxpayer who is more ethical or who perceives tax audit probability to be high will have lower intentional noncompliance, and vice-versa. However, these two variables partly moderate each other's effect, with intentional noncompliance being particularly large when a taxpayer has low ethical standards and has low perceived tax audit probability. The results underline the suggestion of prior research to examine both direct and interaction effects of personality traits, like ethical standards, and environmental variables affecting economic gain from noncompliance, such as perceived probability of tax audit. The participants in this study were undergraduates majoring in business and all had in-class experience in preparing individual tax returns. The research question and the design of the experiment in this research were very specific in their scope to avoid confounding the results. For example, the impact of other theoretical variables (such as risk preference of taxpayers, tax rates and penalty rates) that affect compliance decisions was controlled in the experiment. Ethical standards were measured using the Mach IV instrument. An attempt was made to separate intentional from unintentional noncompliance as they are separate constructs. Finally, audit probabilities were perceived by the taxpayer, in contrast to being objectively manipulated using too high and unrealistic numbers.
Ghosh et al. (Sat,) studied this question.