Tax compliance under different institutional settings in Italy and Sweden: an experimental analysis

In this paper, we study how people from different countries would react to institutional changes in terms of tax compliance. We choose an experimental setting and focus on two features of the tax system: efficiency and tax rate. We develop our analysis in two countries characterized by high tax burdens, but with relevant differences in terms of tax evasion and the quality of public services: Italy and Sweden. The main result is that participants from both countries react similarly to changes in efficiency and tax rates: tax compliance rises when efficiency increases, and tax compliance falls when the tax rate increases. However, the absolute level of tax compliance depends on the population’s composition in terms of social preferences (prosocials and individualists). This may suggest that, even if cultural factors matter, institutional features—especially efficiency—play a relevant role in determining taxpayers’ behavior. In particular, if the level of efficiency is high, both Italians and Swedes tend to pay taxes when the tax burden is high. We conclude the paper by discussing related policy implications.