Tax Morale and Social Desirability Bias: Examining the Shadow Economy Experimentally

It is believed that high tax morale delivers higher tax compliance.

However, it can also foster social desirability bias when respondents feel pressure to provide morally accepted even if untrue answers.

This research project offers to understand how tax morale fosters social desirability bias and seeks ways to reduce the size of shadow economy.

Using a novel experimental methodology, it will provide more precise measurement and behavioural insights of tax evasion in three European countries with different institutional settings and tax morale.

The project proposes to carry out a list experiment that has been recently exploited in social research studies to mitigate the bias in responses to sensitive questions.

The list experiment will be carried out in three European countries with a different setting: (1) with high tax morale and high compliance (Denmark), (2) with high tax morale and low compliance (Italy); (3) with low tax morale and low compliance (Latvia).

The findings from the list experiment will be used to carry out a field experiment with the State Revenue Service of Latvia to integrate research findings in real-world setting and develop tools to fight shadow economy.

As such, this research project will deliver a deeper understanding of tax morale and will offer useful policy recommendation with respect to the shadow economy and its characteristics in Europe.