Filling the Tax Gap: How Evasion Disclosures Increase Charitable Giving

• In Event: State Capacity and Taxation

Abstract

Do individuals support the provision of public goods by the central state when they know that fellow taxpayers choose not to share the fiscal burden? State institutions across countries publicize information about tax evaders, to increase compliance through a naming-and-shaming logic. However, little is known about the impact of noncompliance perceptions on broad attitudes towards the state. In this study, I argue that noncompliance disclosures can lead to decreased support for central state spending, undermining the fiscal contract. This is the case across Slovakian municipalities. Exploiting granular data on public disclosures of noncompliance and enforcement, I show that when communities are exposed to a local business' evasion of the VAT, donations to local NGOs increase by an average of 800 euros. These donations come from a Slovak system that allows taxpayers to redirect part of their income tax from the central state budget to a private non-profit of their choice. As such, this response to disclosed noncompliance reveals an increased preference for private provision of club goods over central provision of public goods. A survey experiment with a representative sample of 2000 Slovak adults replicates the effect from the natural experiment and further sheds light on the mechanism underpinning it.

Author

• Simone Paci, Columbia University