DETERMINANTS OF THE DECISION TO EVADE, THE PERCENTAGE AND THE AMOUNT OF EVASION: EMPIRICAL ANALYSIS OF EXPERIMENTAL RESULTS

Tolga Naci SARUÇ (Afyon Kocatepe University)

The experiment took place in Istanbul with 38 participants who were mostly self-employed business people or teachers. There was a practice round plus 8 rounds, each consisting of 10 months. The objective of the experiment was to gather information with which to test the effect of certain variables upon (i) the decision to evade income taxes and (ii) the amount of income tax evasion, both in the absolute terms and as a proportion of income. The experiment was conducted outside of the classroom/laboratory environment in order to improve the reliability of the study. In order to encourage participants to take the experiments seriously, each participant was paid according to his/her net income in the experiment. The results indicate a very strong positive effect of tax rates upon both the decision to evade income tax and upon the degree (and absolute amount as well), once individuals have decided to evade. However, the expected fine has a significant deterrent effect on both the decision to evade taxes and the amount of taxes evaded. While an increase in fines had the expected deterrent effect, an increase in audit rates increase the probability of evasion; this latter finding may be explained by the 'spite' or the 'crowding out' effects.