Tax Compliance Of Small-Medium Enterprises
Nowadays, small-medium enterprises that depend more and more on money exchanges, have been found to be particularly susceptible to low taxation ethics, in particular, when they under-report income and/or evade VAT. Ongoing experiments show that money is an exceptiona ground-breaking and tempting reward, which evokes a strong emotional response. Thus, the relative effectiveness of discouragement such as audit probabilities and tax fine is moderate by affect. These results must be analysed by cognitive and affective aspects of human behaviour.
Taxpayers weigh the expected utility of the benefit from a successful tax evasion with the risk of being fined or punished. Even if the standards assume that individuals are being rational in decision-making, when it comes to tax evasion individuals not always seem to be calm and detached because this kind of decision involves not only rationality but also human emotions. Moreover, we define cognition as mental processes that deal with knowledge acquisition, including awareness and perception, reasoning and judgment while, by contrast, affect is defined as feeling and emotion. At last tax evasion, is a phenomenon which is captured by a multiple-measure approach in the experimental studies. Meanwhile some laboratory experiments point out that, there is a positive effect of audit probability on tax compliance, some others, on the other hand, find no strong evidence which prove it. Overall, tax compliance cannot be explained just by economic variables, indeed many studies have put forward some other variables such as trust, fairness, justice, social norm and ethics.
Once all of these behavioural factors are being take in account, how far laboratory experiments are able to represent, with a reasonable confidence interval, the human behaviour in tax evasion, from the laboratory to the real world? From one side, laboratory experiments have helped scientists to better understand external phenomena; in fact, their interpretation and their application, had been used widespread. Thus, studying the context in which decisions are embedded and, moreover the manner in which participants act is fundamental for the purposes of these experiments, which is more stressed on the emphasis and the mechanisms beyond the decision of the participants. On the other hand, the outcomes of the experiments, had not always reflected the same results, obtained from laboratory, to the real world. This discrepancy can be explained by the huge number of factors which vary from laboratory to laboratory. Moreover, these experiments are specifically designed by scientists, who test them in a controlled environment with an accurate selection of participant, who may hold different behaviour in the lab instead the ones they may take in a real-world circumstance. Furthermore, laboratory experiments are often artificial and abstract; they depend on self-reports and fictitious case situation, and frequently draw on student samples with limited experience (for example in the tax decisions field).
To conclude, laboratory experiments providing an important tool for studying policy changes. Even if a few concerns remain: the use of experiments entails trading off inner validity at the expense of external validity. As an instance, evaluate the magnitude of an increase of taxation or punishment probabilities on ethics and compliance. Hence, the limitation of the outcomes deals with the reliance on experiments, which, however, serve an important bridging function between hypothesis and exact research (based on field data).
