The impact of power of authorities on trust in authorities in the tax context

Tax research greatly benefits from the elaboration of the impact of the perceived power of authorities on taxpayers` trust in authorities and subsequently on tax compliance. In the well- known slippery slope framework an orthogonal relation between this power and trust is assumed, but first empirical tests suggest that different qualities of power interact with trust. We adopt the theory of the bases of social power and distinguish between perceived coercive power, i.e. authorities` influence strategies are perceived as punishments and rewards, and perceived legitimate power, i.e. authorities are perceived to influence taxpayers through legitimation, expertise, information allocation and identification processes. We assume that perceived coercive power decreases trust in authorities, whereas the perceived legitimated power increases trust in authorities. With six empirical studies these assumptions are elaborated. (a) It is identified whether the theoretical concepts of perceived coercive and legitimate power correspond to taxpayers` actual perceptions. (b) An instrument to measure the relevant constructs is developed. (c) It is tested with two studies, how perceived coercive and legitimate power influence trust and subsequently tax cooperation. (d) The impact of changes of power on trust and tax compliance is investigated in two experiments. The findings of the proposed study will immensely benefit tax research through the extension of the slippery slope framework, will allow valuable recommendations for tax authorities, and in the long run will promote societal welfare.

Tax compliance of citizens and corporations is of tremendous importance in modern democracies. Without the honest payments of citizens, the state is lacking funds to finance public goods (e.g., schools) or to pay back debts (e.g., Greece). In addition, if some taxpayers do not pay their fair share, other taxpayers are likely to perceive the system as unjust and their tax moral declines as well. The present FWF project offers valuable information on a theoretical, empirical and practical level. Theoretically, the Slippery Slope Framework of tax compliance was extended to explain and test why taxpayers pay or evade taxes. The framework assumes that the dynamic between two qualities of power of tax authorities (coercive and legitimate) and two qualities of trust in authorities (reason-based and implicit) explain tax climates, motivations to pay taxes and finally, tax contributions. Coercive power is based on the perception of harsh and strict audits and fines whereas legitimate power is based on the perception that the tax authorities are experts who work based on legitimated procedures and a good information policy. Reason-based trust is the deliberate conclusion of taxpayers that the tax authorities have an important task and are motivated, competent and benevolent. Implicit trust is the associative and unconscious stimulus-based feeling that the authorities can be relied on e.g., because they are an official institution or have friendly staff members. These different forms of power and trust are assumed to influence each other and in turn tax compliance. In the present project, these assumptions were tested with survey studies on employed and self-employed taxpayers, from Austria, the Netherlands, Finland, Hungary, and Pakistan. Qualitative interviews with tax auditors and self-employed taxpayers, online and laboratory experiments and, in cooperation with the Austrian Ministry of Finance, also a field experiment were conducted. The results of these studies showed, that coercive power of tax authorities likely reduces implicit trust and causes a hostile tax climate in which tax authorities and taxpayers perceive each other as enemies. In contrast, legitimate power increases reason-based trust and fuels a service climate in which the tax authority and the taxpayers work with each other in a professional service-client relationship. The results show that coercive power is necessary to a certain degree to sustain tax compliance, however, it should be accompanied by legitimate power in order to generate trust in the authorities and to increase honest tax payments. We are convinced that the outcomes of the present FWF project will fuel future tax research and can help tax authorities to foster trust and tax moral in our democracies.