The Ethics of Tax Evasion: An Investigation into Demographic Differences

INTRODUCTION Many articles have been written about tax evasion. Most of them have appeared in the accounting, economics and public finance literature. The usual thrust of these articles is to discuss technical aspects of tax evasion. Practitioner journals address legal aspects and evasion techniques. Scholarly journals focus on lost tax revenues or reasons why collections are not more efficient. Ethics is seldom discussed, or when it is discussed, it is usually done superficially. Oftentimes the discussion begins with the premise that what is illegal is also unethical. The present paper is different. This paper begins with an overview of the ethical literature that has been published on tax evasion and proceeds to present the results of an empirical study that solicited views on the ethics of tax evasion from participants in six countries. This study had several goals. One goal was to rank the main arguments that have been used to justify tax evasion on ethical grounds over the last 500 years. Another goal was to determine which categories of arguments drew the most support from a wide range of cultures. BACKGROUND ON TAX EVASION Tax evasion has a long and distinguished history. Adams (1982, 1993) and Webber and Wildavsky (1986) trace the history of taxation and tax evasion back 5,000 years to ancient Egypt. Baldwin (1967), Beito (1989), Larson (1973), Rabushka and Ryan (1982) and Valentine (2005) have written about tax revolts while Greenwood (2007) and Holmes and Sunstein (1999) give us reasons why taxpayers should not revolt. Chodorov (1954), Cowell (1990), Graetz and Shapiro (2005), Gross (1995), Johnston (2003, 2007), Lewis and Allison (2002), Myddelton (1994) and Shughart (1997) tell us what is wrong with the current system. Hall and Rabushka (1985) have argued in favor of a flat tax to increase fairness whereas McCaffery (2002) argues that the flat tax is not fair. Others have argued that the income tax must be abolished altogether (Curry, 1982; Hultberg, 1996; Sabrin, 1995). Alm, Martinez-Vazquez and Rider (2006), Edwards and Mitchell (2008) and Mutti (2003) have examined tax competition and the effect it has on economic reform and foreign direct investment. David Ricardo (1817; 1996) wrote the first classic treatise on taxation. Musgrave and Peacock (1958) collected and reprinted a number of other classic treatises on taxation and public finance. Musgrave made a number of other contributions to the literature of public finance (Musgrave, 1959, 1986; Musgrave and Musgrave, 1976) and participated in a scholarly debate with Nobelaureate James Buchanan on the proper role of taxation in society (Buchanan and Musgrave, 2001). James Buchanan and others have examined public finance theory from the perspective of public choice theory (Buchanan, 1967; Buchanan and Flowers, 1975; Cullis and Jones, 1988). The most comprehensive literary survey of tax evasion in the twentieth century was done by Martin Crowe (1944), who examined the Christian (mostly Catholic) tax evasion literature over the prior 500 years, much of which was in Latin. He brought this literature to the attention of English speaking scholars. McGee (1994, 1998a, 1999a, 2006) used the Crowe study as the basis for several theoretical and empirical studies of tax evasion. Torgler (2003) conducted a comprehensive, multi-country study of tax morale that expanded on the Crowe and McGee studies. A number of country studies have focused on various aspects of tax evasion. McGee (1999b) found that Armenians evade taxes because there is no mechanism in place to collect taxes and because they do not feel any moral obligation to pay taxes to a corrupt government that gives them nothing in return for their taxes, reasons that are also present in a number of other former Soviet republics and Soviet bloc countries as well as in Asia, Africa and Latin America. Ballas and Tsoukas (1998) examined cultural aspects of tax evasion in Greece. …