See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/287109599

Tax Compliance as a System: Mapping the Field

Article in International Journal of Public Administration · December 2015

DOI: 10.1080/01900692.2015.1028636

CITATIONS READS
51 3,570

1 author:

Kerly Randlane
Estonian Academy Of Security Sciences
6 PUBLICATIONS 87 CITATIONS

SEE PROFILE

All content following this page was uploaded by Kerly Randlane on 27 January 2016.

The user has requested enhancement of the downloaded file.

 INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION
http://dx.doi.org/10.1080/01900692.2015.1028636

Tax Compliance as a System: Mapping the Field

Kerly Randlanea,b
a
Faculty of Social Sciences, Tallinn University of Technology, Tallinn, Estonia; bThe Financial College, Department of Taxation and Customs,
Estonian Academy of Security Sciences

ABSTRACT KEYWORDS
Tax evasion is a serious and growing problem all over the world. In most cases, non-compliant tax Non-compliance; system; tax
behavior is associated with tax evasion. Such approach, however, is incomplete. There is a lack of behavior; tax compliance;
tax morale
clear definitions of compliance and non-compliance. This article focuses on defining the key terms
related to tax compliance and on mapping and systematizing the determinants of tax compliance
and proposes a way to develop an administrative strategy for tax compliance. The novelty of the
study lies in approaching tax compliance as a systemic whole. A systemic approach to tax
compliance as a comprehensive whole could serve as the basis for the tax authority in developing
administrative strategies.
Downloaded by [62.65.59.21] at 01:00 27 January 2016

Introduction approach. Thus, while initially tax compliance was stu-

died from the viewpoint of economic theory, followed
Tax evasion is a serious and growing problem all over the
by the integration of economics and social psychology,
world. Every year, millions of tax revenues remain uncol-
currently the tax behavior of individuals is additionally
lected due to tax fraud regarding value-added tax or
explained with the help of the neuroeconomic
envelope wages, reductions in the tax burden, etc.
approach.2 Studies in neuroeconomics report that in
Uncollected tax revenue primarily affects the amount
situations where taxpayers feel uncertain about rewards
and quality of public goods and services provided by the
and losses, the decision-making process is guided by
state. In 2011, the total tax gap in the EU-26 countries was
emotions (Bătrâncea & Nichita, 2012).
estimated at 193 million euros or 1.5% of GDP (European
It is because of the interdisciplinary nature of tax
Commission, 2013). The tax gap is more than a problem
compliance that various problems appear, starting with
of lost revenue. It is a visible sign of non-compliance.
the vagueness of concepts, the reliability of informa-
For some time already, the research in the field of
tion, and the variety of measurement tools. Several
tax behavior has not focused on tax evasion but on
studies present controversial and unconvincing evi-
voluntary tax compliance, i.e., the question is not
dence due to the terminological confusion, the large
about why taxes are evaded but rather why taxes are
number of determinants and measurement tools, and
paid. The key question is that of increasing voluntary
the lack of reliable information, the complexity, and the
tax compliance1 and thereby decreasing the state’s
relatively early development stage of the research field.
administrative costs. Additionally, the approach to the
The problems of researching tax compliance can be
research object has changed in recent years. The tax-
divided into two groups: the vagueness of terms and the
payer is no longer viewed as an individualistic and
problems related to the concept itself. There is a lack of a
rational being, i.e., behaving like homo economicus.
clear definition of compliance and non-compliance
The tax behavior of individuals and their readiness to
(Kirchler & Wahl, 2010). The existing definitions of tax
pay taxes can be addressed as a universal phenomenon
compliance are incomplete. The vagueness of terms and
which is influenced by a variety of factors.
problems related to the discipline itself have contributed
Since tax compliance as a phenomenon involves
to the lack of a comprehensive picture of compliant and
diverse scientific disciplines, it is hard to define. As a
non-compliant behavior. Usually, only one or two ele-
research field, tax behavior is mainly related to eco-
ments are studied, but not tax compliance as a whole.
nomics, psychology, sociology, politics and law.
In order to address these problems, the article
Recently, studies of tax behavior have even included
attempts to define the key concepts related to tax
knowledge from the medical field, i.e., the neurological

CONTACT Kerly Randlane kerly.randlane@gmail.com Udeselja street 2-8, 11913 Tallinn, Estonia.
© 2015 Taylor & Francis
 2 K. RANDLANE
compliance, to map and systematize the factors deter-
mining tax compliance, and to provide a basis for
developing an administrative strategy for tax
compliance.
The concept of tax compliance as a complex phe-
nomenon is approached by applying the principles of
system theory. According to the system theory, key
concepts are determined and defined, and their rela-
tionships are described. In addition to the system the-
ory, concept mapping approach is applied in
determining the elements to be considered in compil-
ing the theoretical model of tax compliance. In map-
ping and systematizing the determinants, emphasis is
laid on individuals and their decision to be or not to be
tax compliant. The novelty of the study lies in
approaching tax compliance as a systemic whole.
The article is structured as follows. The first part
explains the concepts of tax compliance and tax morale.
Downloaded by [62.65.59.21] at 01:00 27 January 2016
In addition, the arguments are given for why it is impor-
tant today to pay attention to tax morale. In the second
part, the focus is on identifying the main determinants
of tax compliance. In the third part, the theoretical
model of the systemic approach to tax compliance is
presented. The article concludes in the fourth part.
The concept of tax compliance
Explaining tax compliance
Tax compliance is considered to be a relatively new
research field. According to various recent publications
(e.g., Alm & Torgler, 2011; Alm et al., 2012b; Kirchler
& Wahl, 2010), studies on tax compliance began in the
early 1970s, when the decision to comply was framed as
a purely economic decision under risk (Alm et al.,
2012b). Allingham and Sandmo (1972) and Srinivasan
(1973) found that taxpayers have only two options:
either to declare their income or to declare less than
their actual income. The decision whether to be or not
to be compliant is based on the cost–benefit calculation.
Unpaid taxes were considered as the typical income
and the risk to get caught and the size of the potential
punishment were viewed as the typical cost (OECD,
2010). According to this approach, tax compliant or
tax non-compliant behavior is the outcome of cost–
benefit calculation and depends primarily on the active-
ness in applying coercive measures.
However, by now, there is increasing evidence that a
simple cost–benefit approach cannot be used to predict
everyday choices of people (Frank, 1991), including tax
compliance (e.g., Alm, McClelland, & Schulze, 1992;
Alm, Sanchez, & Juan, 1995). In other words, indivi-
duals’ tax behavior does not depend entirely on
economic benefits, but also on the personal and social
norms of the individual (OECD, 2010).
It is noteworthy that the influence of social norms
on tax behavior was highlighted already in the 1960s.
German economist Günter Schmölders noted that the
economy and economic behavior should not be ana-
lyzed only from the classical theoretical perspectives
(Schmölders, 2006). Schmölders emphasized that indi-
viduals’ tax behavior does not depend only on rational
decisions; tax compliance is a behavioral issue
(Schmölders, 1970).
Given the above, the studies of tax compliance can,
in general terms, be divided into two groups: those
based on the economic approach and those based on
the behavioral approach. The economic approach pre-
sumes that people act rationally, and the key measure
for avoiding tax fraud is high penalty rates and a high
probability to get punished. The behavioral approach
states that people do not usually act rationally but
irrationally, and this is largely due to social determi-
nants. In other words, tax evasion is a technical pro-
blem in the opinion of economists and a social problem
in the opinion of social scientists (Schmölders, 2006).
Tax compliance has also been defined as the indivi-
dual resourcefulness of the taxpayer in paying mini-
mum taxes (Kirchler & Maciejovsky, 2001). In most
cases, non-compliant tax behavior is associated with
tax evasion. Such approach, however, is incomplete.
There is a lack of clear definitions of compliance and
non-compliance. Non-compliance is a broader concept
than just reducing one’s tax liability by illegal means.
Evading taxes, decreasing taxes, or avoiding taxes are
achievable by both legal and illegal means. According
to the economic interpretation in tax law, it is not the
legal form of a transaction that is relevant but its
economic content and objective. In other words,
decreasing tax liabilities either by illegal or by legal
means are both examples of non-compliance. In this
approach, non-compliant people include also these
people who reduce their tax liabilities by legal means
or avoid taxes (Figure 1). In addition to tax avoidance
and tax evasion, a person who fails to fulfill at least one
of the main obligations of the taxpayer is theoretically
also non-compliant.
The principal obligations of the taxpayer are univer-
sal and do not depend on the profile or the field of
activity of the taxpayer. In general, such obligations
include the registration in the system, timely filing of
the declaration, reporting of complete and accurate
information, and timely payment of tax obligations
(OECD, 2009). According to this approach, individuals
can be considered non-compliant when they do not
intentionally avoid paying taxes but have problems

Figure 1. Actual tax behavior (compiled by the author).
with paying taxes on time due to various reasons. Thus,
the term “non-compliant” characterizes not only tax
evasion, but also the cases when tax is not paid in due
time, either intentionally or unintentionally (Webley
et al., 2010). In general, tax compliance is the degree
Downloaded by [62.65.59.21] at 01:00 27 January 2016
to which taxpayers comply with the tax rules.
Tax compliance can also be defined by the way of
achieving it. By defining it in this way, tax compli-
ance is either voluntary or enforced (Kirchler, Hoelzl,
& Wahl, 2008; OECD, 2008). Voluntary compliance
means the taxpayers’ voluntary fulfillment of their
main obligations without the involvement of the tax
authority: people voluntarily declare and timely pay
their tax obligations, and their tax accounting is in
accordance with the norms in tax law (OECD, 2004).
Enforced compliance means that tax compliance is
achieved with the intervention by the tax authority,
which may involve correcting data during control or
implementing coercion in collecting tax arrears. In
other words, the administrative burden of the tax
authority is minimal in voluntary compliance and
heavy in enforced compliance.
The vagueness of the terms is illustrated by the more
widespread approach, according to which tax compli-
ance is probably the most neutral term to describe the
taxpayers’ willingness to pay their taxes3 (Kirchler,
2007). This, however, is not supported by the approach
described above. Therefore, I argue that tax compliance
is not the willingness of the taxpayer to pay taxes but an
outcome already achieved. In other words, tax compli-
ance has been achieved either voluntarily or through
the intervention of the tax authority (see Figure 1).
The OECD (2014) defines tax compliance as a
degree to which the tax behavior of taxpayers complies
(or fails to comply) with the tax rules of their country.
In short, it cannot be said that tax compliance is the
taxpayer’s ambition, will, or readiness to pay taxes in
the required amount. Rather, tax compliance is the
outcome of the tax behavior of the taxpayer. In order
to understand tax compliance as a comprehensive
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 3
whole, the factors that influence the decision of the
taxpayer to be or not to be compliant need to be
understood. This means taking a step back and explain-
ing the willingness to pay taxes and the factors that
influence it.
Tax morale as the taxpayers’ willingness to pay
taxes
Tax compliance is the outcome of the taxpayers’ tax
behavior which depends on the taxpayers’ willingness
to pay taxes. The willingness to pay taxes is defined in
professional literature as tax morale. Tax morale is, in
general terms, the attitude of the individuals toward
paying taxes, their individual conceptions and norms,
and their intrinsic motivation (Randlane, 2013).
Tax morale as the willingness to pay taxes was dis-
cussed already in the 1930s (Schmölders, 1932), when
attention started to be paid on the relationship between
the taxpayer and the state. This time is also considered
to be the beginning of researching tax behavior. The
concept of tax morale was defined first in the 1960s as
the attitude of a group or the whole population of
taxpayers regarding the question of accomplishment
or neglect of their tax duties; it is anchored in citi-
zens´ tax mentality and in their consciousness to be
citizens, which is the base of their inner acceptance of
tax duties and acknowledgment of the sovereignty of
the state (Schmölders, 1960, pp. 97–98).
Despite the solid historical background of the term
“tax morale,” quite recently it was still considered an
underdeveloped research field (Andreoni, Erard, &
Feinstein, 1998, p. 852). Contemporary professional
literature has emphasized the lack of a broad approach
to tax morale as well as its treatment as a black box or
residuum (e.g., Feld & Frey, 2002; Frey & Torgler,
2007). Tax morale is primarily viewed as a problem in
rational decision-making, and its connectedness with
socio-psychological indicators is ignored. Research has
 4 K. RANDLANE

demonstrated, however, that the tax behavior of an Why is tax morale important right now?
individual is a complex phenomenon that is not based
Why do people pay taxes? In most OECD countries,
only on the individual’s economic behavior (Frey &
the simple answer would be that they are forced to
Torgler, 2007). Thus, the question of tax morale is
comply with regulations (Daude, Gutiérrez, &
broader than the question of why people do not
Melguizo, 2012). The taxpayer used to be viewed as
cheat, even if they could do so (Torgler, 2007).
a rational and egotistic person whose aim was to
It has been stated repeatedly that tax morale is a
maximize personal benefits. In the 1970s, most
social phenomenon which is hard to define unambigu-
researchers agreed with this administrative approach,
ously. According to the general definition, tax morale is
arguing that tax compliance depended only on the
understood as the taxpayer’s internalized willingness or
effectiveness of implementing coercive measures (e.g.,
intrinsic motivation to pay taxes (e.g., Alm & Torgler,
Allingham & Sandmo, 1972; Srinivasan, 1973). The
2006; Braithwaite & Ahmed, 2005; Feld & Frey, 2002)
studies of tax evasion were based on the economics-
but also as a moral duty and belief in the social con-
of-crime approach by Becker (1968), which presumes
tribution as the outcome of paying taxes (Torgler &
that people seek to increase benefits through criminal
Schneider, 2006).
activities while simultaneously minimizing costs and
It is important to stress that tax morale and tax
risks. Thus, the taxpayer was seen as a rational and
compliance are not synonyms. Tax morale is the will-
egotistic person whose aim was to maximize personal
ingness to pay taxes, while tax compliance is the con-
gain (Kirchler, 2007). Such an administrative
Downloaded by [62.65.59.21] at 01:00 27 January 2016

dition already achieved. Tax morale is considered an

approach where the taxpayer is treated as a potential
important determinant of tax compliance. Thus, when
criminal, and better enforcement of coercive measures
tax morale is high, tax compliance is probably also
is assumed to lead to honest payment of taxes, is
relatively high and vice versa (Torgler, 2007).
called the traditional “enforcement” paradigm (Alm
Research findings indicate that tax morale helps to
& Torgler, 2011, p. 646). Increasing the probability
explain why people pay taxes. However, a causal
of control and making the sanctions more effective
relationship between actual tax compliance and tax
were seen as the only measure of ensuring tax com-
morale has not been proved (Halla, 2012). The ques-
pliance. The administrative approach based on coer-
tion is not about whether there is any relationship
cion is characterized primarily by the confrontation
between the two, but rather how to measure it. Since
between the tax authority and the taxpayer, a large
it is hard to collect information about tax compli-
social distance, punishments, a pure rational cost–
ance, people’s attitudes and beliefs are usually mea-
benefit model, intensive intervention by the tax
sured and not their actual tax behavior. Research
authority, and therefore forced tax compliance
results show that both economic factors and social
(Figure 2).
norms (including moral judgments) affect people’s
The implementation of coercive measures is presum-
tax behavior (Halla, 2012). The moral sentiments
ably the easiest way to force taxpayers to pay taxes. The
are considered more dominant than other factors
question is, however, whether addressing all taxpayers
(Alm & Torgler, 2011).
as rational and egotistic individuals can explain their
Thus, individuals’ attitude toward paying taxes, their
tax behavior. Research demonstrates that tax evasion
personal conceptions, norms, and motivation can be
cannot be explained convincingly only by the greed of
expressed by the term “tax morale.” In other words,
people (e.g., Alm & Torgler, 2011; Alm, Kirchler, &
by taking the core meaning of the term “morale,” tax
Muehlbacher, 2012a; Frey, 2003; Webley et al., 2010).
morale can be viewed as the tradition to pay taxes,
The traditional “enforcement” paradigm, which histori-
which has developed historically and has become
cally has been used as a way to analyze tax compliance
rooted in the deep consciousness of people (Randlane,
and as a measure to influence tax compliance, and in
2013, p. 76).
which the taxpayer is treated as a potential criminal, is
Tax morale is a multidimensional concept which is
by now ideologically outdated. Studies have provided
affected by various factors. Tax morale serves as the
clear evidence that the strategy for influencing tax
common denominator for non-rational determinants
compliance requires something more than better enfor-
and motivation, such as social norms, personal
cement of coercive measures (Alm et al., 2010).
values, and various cognitive processes (Kornhauser,
The breakthrough in the relationship between the
2007). Tax morale is complex, and its elements are
tax authority and the taxpayer took place in the early
not static (Kornhauser, 2007), i.e., tax morale is not a
1990s together with the spreading of the principles of
thing in itself, but needs to be addressed and
New Public Management (NPM).4 The tax authority
developed.

Figure 2. Compliance strategies and tax climate (compiled by the author).
was identified as a service provider and the taxpayer
began to be called the “customer.” The “service” para-
digm acknowledges the importance of coercive mea-
sures in tax administration, but emphasizes the role of
the tax authority as a service provider (e.g., Alm &
Torgler, 2011; Alm, Cherry, Jones, & McKee, 2010;
Alm et al., 2012a; Kirchler et al., 2008). Taxpayers
Downloaded by [62.65.59.21] at 01:00 27 January 2016
were no longer seen as a single anonymous group
with a dominant motivation (Alm et al., 2012a), i.e.,
the taxpayer as a customer was treated as a unique
individual. The increase in tax compliance was consid-
ered to be achieved through an increase in the quality
of services and customer-friendly treatment of the
taxpayer.
Still, even the above-mentioned administrative stra-
tegies (enforcement and service) are not sufficient to
ensure voluntary tax compliance. Tax compliance is not
merely the outcome of evading taxes, implementing
coercive measures, or service activities. To increase
voluntary tax compliance, it is important to have a
mutually trustful relationship between the tax authority
and the taxpayer. This relationship is also called the
“psychological contract” (Feld & Frey, 2002, p. 89). It
means that the tax authority treats the taxpayer in a
respectful manner, and in return the taxpayer honestly
declares and pays tax liabilities. Thus, establishing and
maintaining a trustful relationship plays an important
role in the strategy of ensuring tax compliance. The
“trust” paradigm includes morale, ethics, elements of
social norms, and other behavioral factors (Alm &
Torgler, 2011, p. 646). A trustful administrative
approach is characterized by the willingness to coop-
erate, synergetic climate and minimal intervention by
the tax authority (voluntary compliance), a personal
approach, and the implementation of coercive mea-
sures only in case of need (Figure 2).
The administrative strategy for ensuring tax compli-
ance requires, given the above, a multidimensional
approach—a combination of enforcement, service, and
trust. Thus, if coercion is increased, the levels of service
and trust have to be increased at the same time. Tax
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 5
compliance is a complex system which is primarily the
outcome of the interaction between the tax authority
and the taxpayer.
Research on tax behavior indicates that in develop-
ing and shaping tax compliance, there is a clear move-
ment from the coercive approach where the taxpayer is
treated as a rational, profit-oriented person toward an
individual approach (Alm et al., 2012). Traditional
coercive measures (e.g., audit, penalties) can only
explain a small part of tax compliance. The question
is no longer about why people cheat but rather why
people pay taxes.
Tax compliance is not simply the outcome of
opportunities to evade tax and the deterrence and
prevention strategies of tax authorities. To a consider-
able extent, tax compliance has to be attributed to the
tax morale of taxpayers. (Feld & Frey, 2002) The will-
ingness of the taxpayers to pay taxes and their internal
motivation, or the “tax morale,” is considered the key
in studying tax compliance (e.g., Kirchler, 2007;
Kornhauser, 2007; Torgler, 2007). Tax morale is not
a thing in itself, but it depends, among other factors,
on the relationship between the taxpayer and the tax
authority. Research has demonstrated that treating
taxpayers in a respectful manner supports and even
increases their willingness to pay taxes while disre-
spect increases the taxpayers’ motivation to avoid
taxes (Feld & Frey, 2002).
Why then is tax morale so relevant today? It is
primarily because the classical economic theory fails
to fully explain tax compliance. It is clear by now that
there does not exist rational behavior totally isolated
from the environment. An individual’s tax behavior
does not depend entirely on economic gains and the
economic-of-crime-approach is not able to explain
everyday choices of the individual. Although the imple-
mentation of coercive measures is the easiest way to
increase tax compliance, it is also the most expensive
one. Since resources are limited, the challenge lies in
maximizing the share of taxes paid voluntarily. To
increase voluntary tax compliance, attention needs to
 6 K. RANDLANE
Figure 3. Main determinants of compliance behavior (compiled by the author).
be paid to the relationship between the taxpayer and
the tax authority. This relationship has a direct impact
on the willingness of people to pay taxes, i.e., their tax
morale and in this way also on tax compliance as a
Downloaded by [62.65.59.21] at 01:00 27 January 2016
whole. In sum, an individual approach has replaced the
impersonal coercive approach, and attention is being
focused on the relationship between the taxpayer and
the tax authority and via this relationship on the will-
ingness of people to pay taxes, their tax morale. Thus,
in researching tax compliance the factors that affect the
willingness to pay taxes are of major importance.
Determinants of compliance behavior
While most researchers have reached a common under-
standing that tax compliance cannot be explained only
by economic factors, there is still no agreement on what
exactly affects the willingness to pay taxes.
The studies on tax compliance can, in broad terms,
be divided into behavioral psychology analyses and cri-
tical tax studies. Behavioral psychology focuses on the
relationship between tax compliance and various beha-
vioral factors. The critical tax studies analyze the var-
ious practices, techniques, and discourses used by states
to create taxpaying citizens (Boll, 2014). In most cases,
only a limited amount of determinants are analyzed,
and tax compliance as a whole is not addressed. The
decision of the taxpayer to be or not to be compliant is,
however, complex and affected by numerous factors.
Alm and Torgler (2011) emphasize the following:
Tax compliance sets limits to the theoretical as well as
the empirical approach. The theoretical models do not
reflect the complexity of issues and the research results
are often ambiguous. The empirical work is plagued by
the absence of reliable information about the decisions
of an individual regarding tax behaviour (pp. 640–642).
Given the above-described problems, my approach to
researching tax compliance relies on its systemic
wholeness. The observable elements (potential impact
factors) and their mutual relationships are determined
in order to achieve the optimal functioning of the
system as a whole.
Based on the research findings, the determinants of
tax compliance can be divided into two major groups:
economic or rational factors and non-economic or
non-rational factors (Figure 3).
Economic or rational factors are mainly associated
with rational choice (e.g., Allingham & Sandmo, 1972;
Srinivasan, 1973). Economic or rational factors usually
include the probability of audit and of implementing
sanctions, the tax rate, the economic benefit, the
amount of income, and the tax burden. A taxpayer
evaluates the expected outcomes of the choice to
evade and the choice not to evade taxes, the probability
of evasion detection, punishment of evasion, and the
probability of audits (e.g., Kirchler, 2007; Torgler, 2007;
Wenzel, 2005). The rational choices of individuals are
mainly guided by economic benefits, the implementa-
tion of sanctions, and their potential size.
Non-economic or non-rational factors include pri-
marily social norms (Alm et al., 1995), but also personal
norms, demographic indicators (e.g., age, gender, and
education), etc. Alm, Schmölders, and others under-
stand social norms as tax morale or internal motiva-
tion. Kornhauser (2007) addresses tax morale in even
broader terms and claims that tax morale is the com-
mon denominator for all non-rational factors and
motivation.
Non-economic factors can be divided into two
groups: external and internal norms. Different authors
often use different terms in describing similar factors
and assessing their influence. Thus, for example, the
external norms have been called societal norms or
community standards or national norms or political-
legislative or institutional factors, etc. In broad terms,
external factors include the functioning of the legal
system, democracy, trust in government, the

complexity and fairness of the tax system, the efficiency
of the public sector, social cohesion, and the relation-
ship between the tax authority and the taxpayer (e.g.,
Alm & Torgler, 2006; Frey 2003; Kirchler, 2007;
Kornhauser, 2007; Lago-Peñas & Lago-Peñas, 2010;
Taylor, 2003; Torgler 2003, 2005, etc.).
Besides economic and external factors, an indivi-
dual’s willingness to pay taxes is affected by the indivi-
dual’s internal norms and individual characteristics or
socio-psychological factors (Kirchler, 2007). Research
has demonstrated that the decision of taxpayers to be
or not to be compliant depends on their knowledge and
understanding of taxation, their individual attitudes
and beliefs, the social norms and attitudes of the
society, as well as demographic characteristics such as
age, gender, education, marital status, etc. (e.g., Alm &
Torgler, 2006; Frey & Torgler, 2007; Kirchler, 2007;
Torger, 2005; Torgler, 2007). Internal norms are pri-
Downloaded by [62.65.59.21] at 01:00 27 January 2016
marily an individual’s intrinsic factors or social and
personal norms (Kornhauser, 2007). Personal norms
are understood as the individual behavioral norms of
a person. Social norms are related to the behavior of the
reference group (e.g., family, friends, etc.). Research
findings have shown that social norms are relevant
only for those people who identify strongly with a
group of people (Wenzel, 2004). Both social and perso-
nal norms affect tax morale.
As a new, alternative approach, it has been proposed
that tax compliance is a socio-material assemblage and
compliance is a distributed action (Boll, 2014). In other
Figure 4. A simplified model of tax compliance as a system (compiled by the author).
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 7
words, tax compliance depends primarily on the parti-
cipant and the environment. It is important to note
here that norms are not static. External and internal
norms interact with each other and with the environ-
ment. Thus, the tax authority as an external influencer
has a direct impact on the taxpayers’ willingness to pay
taxes or the taxpayers’ tax morale, and thereby also on
their tax compliance (see Figure 4).
The above-described determinants of tax compli-
ance, even though approached somewhat differently
by various authors, have been the main determinants
investigated in tax compliance research. The author’s
aim is to systematize the determinants (Figure 3) and to
develop, based on these determinants, a systemic
approach to tax compliance, i.e., a comprehensive
model (Figure 4).
The conceptual model of tax compliance
Professionals writing about tax compliance emphasize,
on the one hand, psychological determinants as the key
behavioral factors in understanding tax compliance,
and on the other hand, tax compliance as a social and
institutional practice (Boll, 2014). Tax compliance is a
social phenomenon which is affected both by economic
and by non-economic factors, as well as their interplay.
Thus, in order to increase tax compliance, something
more than better coercive measures is needed (Alm
et al., 2010).
 8 K. RANDLANE
It is increasingly being emphasized that tax compli-
ance is the outcome of the taxpayer’s personal norms
and individual experience (e.g., Kornhauser, 2007;
OECD, 2010; Wenzel, 2004). In getting certain experi-
ences, the activities of the tax authority and the choice
of measures play a major role in addition to the social
and economic environment (see Figure 2). High tax
compliance is not achieved by the domination of one
dimension, but it is the outcome of combining several
measures. That means that in choosing the measures,
the tax authority has to consider the profile of the
taxpayers and various factors that can influence tax
compliance. Taxpayers have to be treated according to
their tax behavior: non-compliant payers by applying
coercion and fear and compliant payers by applying
trust and persuasion (Kirchler, 2007). Policies based
on fear should not be used with honest taxpayers.
Voluntary tax compliance presumes a partnership
Downloaded by [62.65.59.21] at 01:00 27 January 2016
between the taxpayer and the tax authority, not their
confrontation.
The OECD (2010) admits that tax compliance is
an outcome of the complex behavior of an individual,
which requires a complex approach from the tax
authority. Thus, the choice of measures should result
from meaningful activities of the tax authority. It is
also emphasized that becoming knowledgeable about
the essence of the factors is more relevant than mea-
surement results. The amount of academic research
in the field does not change the situation unless the
revenue body develops strategies to improve tax
compliance.
Based on the research which was conducted to study
these problems, I argue that a systemic approach in
which tax compliance is addressed as a comprehensive
whole helps to understand tax compliance and make
strategic choices in the implementation of measures.
According to the principles of the systemic approach,
everything that can be treated, and is reasonable to treat
systemically, should be treated so, including the deter-
mination of the elements to be studied, their character-
istics, and interactions (Lorents, 2006).
The systemic approach in solving complex pro-
blems presumes the creation of a model that imitates
the research object. The model depends primarily on
how the problem is structured. Tax compliance is a
weakly structured system which can only be partly
described mathematically, because it is dominated by
undefined internal relationships and the impact of
the external environment (Rozenfeld, 1975). While
the functioning of a well-structured system can be
studied with quantitative measures of operational
analysis, in the study of weakly structured systems,
systems analysis is applied (Mereste, 1987; Rozenfeld,
1975). It is important to stress that system analysis is
not about applying mathematical methods or proce-
dures, but about logical elaboration of alternative
possibilities. The final results of the analyses are not
found by calculations and they are not expressed
numerically (Mereste, 1987).
The theoretical model of tax compliance has been
built on the feedback system by Norbert Wiener (1961)
in which the system consists of elements which are
connected and intertwined and of the environment in
which activities take place.
According to the model in Figure 4, tax compliance
is a complex phenomenon and affected by both eco-
nomic and non-economic factors, including both poli-
tical and socio-psychological factors. The factors have
been placed in the figure from inside out as assessed by
the author according to their order of importance and
based on the author’s analysis and the findings of ear-
lier studies. The economic factors in the centre of the
model show that an individual does not act in isolation,
and in addition to the opportunity to maximize bene-
fits, the taxpayer is also affected by non-economic fac-
tors and the environment. The socio-psychological
factors in the outer circle of the model indicate their
relevance in shaping tax compliance, continuous
research opportunities as well as the opportunities for
profiling people when choosing measures. The environ-
ment as the most outward, not clearly defined factor, is
characterized by uncertainty. The elements of the sys-
tem or the determinants of tax compliance interact with
one another and are affected by the external
environment.
The model is an abstraction, the aim of which is to
simplify the understanding of real-life situations. The
model is a system illustrating defined objects and their
interactions. In order to know the system better, it
needs to be developed and managed. The theoretical
model idealizes tax compliance as a phenomenon, with-
out making its empirical content explicit. At the same
time, the conclusions made on the basis of the theore-
tical model depend on the general knowledge about the
phenomenon and are not logical constructions totally
separated from the phenomenon.
Tax compliance as a system depends on the inter-
play of determinants as well as these components of
the system that derive from the uncertainty of the
external environment. What is usually known about
tax compliance as a system is its inputs (or taxpayers)
and the output (the collected tax revenue). Although
the tax authority usually lacks knowledge about tax
compliance as a structured system and about the
regularities in the system, it is also possible to oper-
ate only with inputs and outputs, i.e., to use the

principle of “black box” by Ashby (1958). By gradu-
ally changing the inputs, or the profiles of taxpayers,
and recording the changes in outputs, the reactions
of the black box can be studied. The systemic
approach is about creating feedback systems which
provide regular information and which enable to
change activities. The factors deriving from the exter-
nal environment, i.e., the strategic actions of the tax
authority directly influence the output of the system
or the achieved tax compliance.
In sum, tax compliance is not a thing in itself, but a
process managed to a large extent by the tax authority
(the state). “A one-size-fits-all-enforcement model” as
an administrative approach has not provided any
expected results for quite some time (Kornhauser,
2007, p. 157), and traditional coercive measures
explain only a part of tax compliance (enforced com-
pliance). Until there is no single clear and simple
Downloaded by [62.65.59.21] at 01:00 27 January 2016
answer as to how to affect individuals’ tax behavior
in the best possible manner, the choice of measures by
the tax authority and the development of these mea-
sures to improve tax compliance are of key
importance.
Concluding remarks
This article has clarified the concept of tax compliance
and its influencing factors to theories and different
studies. The article focused on defining the key terms
related to tax compliance, on mapping and systematiz-
ing the determinants of tax compliance, and on propos-
ing a way to develop the administrative strategy for tax
compliance.
First, I argued that there is a lack of a clear definition
of compliance and non-compliance. Non-compliance is
usually associated with tax evasion. This, however, is
only a partial view. The concept of non-compliance is
broader and includes both tax evasion and tax avoid-
ance. In addition, individuals are non-compliant when
they do not fulfill at least one of the main obligations of
the taxpayer (e.g., not submitting the declaration on
time, not paying a tax liability, etc.). Individuals are
also non-compliant when their tax compliance has been
achieved through coercion. Compliance behavior or
voluntary compliance means that individuals volunta-
rily declare and pay their tax liabilities, and that their
tax accounting is in accordance with the existing
norms.
Additionally, I argued that tax compliance is not the
willingness of the taxpayer to pay taxes but a condition
already achieved—an outcome or some level which has
been reached either voluntarily or with an intervention
by the tax authority. Thus, tax compliance is the
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 9
outcome of an individual’s tax behavior. The willing-
ness to pay taxes is called tax morale. Tax morale
describes the attitude of individuals toward paying
taxes, their personal beliefs, and norms and intrinsic
motivation. Tax morale is considered the key in
researching and influencing tax compliance. The cur-
rent importance of tax morale can be explained by the
development of the area. Some time ago, the taxpayer
was viewed as a rational being oriented toward max-
imizing benefits, whose behavior could only be
improved by making coercive measures more effective.
It is clear now that there does not exist rational beha-
vior entirely isolated from the environment and that in
order to improve tax behavior something more than
the improvement of coercive measures is needed. In
short, the impersonal approach based on coercion has
been replaced by an individual approach where empha-
sis is laid on the relationship between the taxpayer and
the tax authority and thereby on the willingness to pay
taxes, or tax morale.
Second, I highlighted the fact that due to the
heterogeneous nature of research done in the field,
the large number of factors, and the numerous ways
to interpret these factors, there is no clear answer to
the question of what influences the willingness to pay
taxes. The decision to be or not to be compliant is a
complex one, depending on various factors and the
interplay of these factors. Despite some differences,
the range of factors influencing tax compliance has
remained unchanged for a long time, which has pro-
vided the opportunity to systematize them and to use
them as inputs in creating a comprehensive model of
tax compliance.
Third, due to the complexity of the determinants of
tax compliance, I argue that a systemic approach where
tax compliance is treated as a comprehensive whole
helps to understand tax compliance and make strategic
choices in the implementation of measures. It is not the
measurement results which are that important, but the
substance of the factors and their impact on tax com-
pliance. Tax compliance is a comprehensive system
which depends on the interplay of the factors, the
uncertainty of the external environment, as well as the
strategic actions of the tax authority. Even if the inter-
nal structure of tax compliance as a system and its
regularities are not known, it is possible to develop a
feedback system by operating with inputs and outputs,
and thereby to affect tax compliance. In conclusion, tax
compliance is not a thing in itself but a process man-
aged by the tax authority. A systemic approach to tax
compliance as a comprehensive whole could serve as
the basis for the tax authority in developing adminis-
trative strategies.
 10 K. RANDLANE

Notes Economic Psychology, 26, 523–540. doi:10.1016/j.

1. Voluntary means compliance without any actions taken
by the tax authority.
2. Neuroeconomics is one of the newest fields among
social sciences, a hybrid between neuroscience, experi-
mental economics, and psychology which studies the
neural basis of economic decisions (Bătrâncea &
Nichita, 2012).
3. The author has applied the same approach in her ear-
lier studies.
4. NPM is the transfer of business principles and manage-
ment techniques from the private into the public sector
(Pollitt & Bouckaert, 2011).
References
Allingham, M. G., & Sandmo, A. (1972). Income tax evasion:
A theoretical analysis. Journal of Public Economics, 1,
323–338. doi:10.1016/0047-2727(72)90010-2
Downloaded by [62.65.59.21] at 01:00 27 January 2016
joep.2004.08.003
Daude, C., Gutiérrez, H., & Melguizo, Á. (2012). What drives
tax morale? (Working Paper 315). Paris, France: OECD
Development Centre.
European Commission. (2013). Study to quantify and analyse
the VAT Gap in the EU-27 Member States. The Hague, The
Netherlands: DG TAXUD, European Commission.
Feld, L. P., & Frey, B. S. (2002). Trust breeds trust: How
taxpayers are treated. Economics of Governance, 3, 87–99.
doi:10.1007/s101010100032
Frank, R. H. (1991). Microeconomics and behavior. New
York: McGraw-Hill Education.
Frey, B. S. (2003). Deterrence and tax morale in the European
Union. European Review, 11(3), 385–406.
Frey, B. S., & Torgler, B. (2007). Tax morale and conditional
cooperation. Journal of Comparative Economics, 35, 136–
159. doi:10.1016/j.jce.2006.10.006
Halla, M. (2012). Tax morale and compliance behavior: First
evidence on a causal link. The B.E. Journals of Economic
Analysis & Policy: Advances, 12(1), 1–25.
Kirchler, E. (2007). The economic psychology of tax behavior.

Alm, J., Cherry, T., Jones, M., & McKee, M. (2010). Taxpayer
Cambridge, UK: Cambridge University Press.
information assistance services and tax compliance beha-
Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus
vior. Journal of Economic Psychology, 31(4), 577–586.
voluntary tax compliance: The ‘slippery slope’ framework.
doi:10.1016/j.joep.2010.03.018
Journal of Economic Psychology, 29, 210–225. doi:10.1016/j.
Alm, J., Kirchler, E., & Muehlbacher, S. (2012a). Combining
joep.2007.05.004
psychology and economics in the analysis of compliance:
Kirchler, E., & Maciejovsky, B. (2001). Tax compliance within
From enforcement to cooperation. Economic Analysis &
the context of gain and loss situations, expected and current
Policy, 42(2), 133–151. doi:10.1016/S0313-5926(12)50016-0
asset position and profession. Journal of Economic
Alm, J., Kirchler, E., Muehlbacher, S., Gangl, K., Hofmann,
Psychology, 22, 173–194. doi:10.1016/S0167-4870(01)00028-9
E., Kogler, C., & Pollai, M. (2012b). Rethinking the
Kirchler, E., & Wahl, I. (2010). Tax compliance inventory
research paradigm for analysing tax compliance behaviour.
TAX-I: Designing an inventory for surveys of tax compli-
CESifo Forum, 13(2), 33–40.
ance. Journal of Economic Psychology, 31, 331–346.
Alm, J., McClelland, G. H., & Schulze, W. D. (1992). Why do
doi:10.1016/j.joep.2010.01.002
people pay taxes? Journal of Public Economics, 48(1), 21–
Kornhauser, M. E. (2007). Normative and cognitive aspects of
38. doi:10.1016/0047-2727(92)90040-M
tax compliance: literature review and recommendations for
Alm, J., Sanchez, I., & Juan, A. (1995). Economic and none-
the IRS regarding individual taxpayers. II National
conomic factors in tax compliance. Kyklos, 48(1), 1–18.
Taxpayer Advocate, Annual Report to Congress, 138–180.
doi:10.1111/j.1467-6435.1995.tb02312.x
Retrieved from https://www.irs.gov/pub/tas/arc_2007_vol_
Alm, J., & Torgler, B. (2006). Culture differences and tax
2.pdf.
morale in the United States and in Europe. Journal of
Lago-Peñas, I., & Lago-Peñas, S. (2010). The determinants of
Economic Psychology, 27, 224–246. doi:10.1016/j.
tax morale in comparative perspective: Evidence from
joep.2005.09.002
European countries. European Journal of Political
Alm, J., & Torgler, B. (2011). Do ethics matter? Tax compli-
Economy, 26(4), 441–453. doi:10.1016/j.ejpoleco.2010.06.003
ance and morality. Journal of Business Ethics, 101, 635–
Lorents, P. (2006). Süsteemide maailm [The world of sys-
651. doi:10.1007/s10551-011-0761-9
tems]. (2nd ed.). Tartu, Estonia: Tartu Ülikooli Kirjastus.
Andreoni, J., Erard, B., & Feinstein, J. (1998). Tax compli-
Mereste, U. (1987). Süsteemkäsitlus: Süsteemsest
ance. Journal of Economic Literature, 36, 818–860.
mõtlemisviisist majandusnähtuste käsitlemisel [A systema-
Ashby, W. R. (1958). General system theory as a new disci-
tic approach: A systematic way of thinking in the treat-
pline General Systems, 3, 1–6. Cited in Mereste (1987).
ment of economic phenomena]. Tallinn, Estonia: Valgus.
Bătrâncea, L. M., & Nichita, R. A. (2012). A neuroeconomic
OECD. (2004). Compliance risk management: Managing and
approach of tax behavior. Annals of the University of
improving tax compliance. Paris, France: Organisation for
Oradea. Economic Series, 1, 649–654. TOM XXI.
Economic Co-operation and Development.
Becker, G. S. (1968). Crime and punishment: An economic
OECD. (2008). Monitoring taxpayers’ compliance: A practical
approach. The Journal of Political Economy, P76(2), 169–
guide based on revenue body experience. Paris, France:
217. doi:10.1086/jpe.1968.76.issue-2
Organisation for Economic Co-operation and
Boll, K. (2014). Mapping tax compliance: Assemblages, dis-
Development.
tributed action and practices: A new way of doing tax
OECD. (2009). Managing and improving compliance: Recent
research. Critical Perspectives on Accounting, 25(4–5),
developments in compliance risk treatments. Paris, France:
293–303. doi:10.1016/j.cpa.2013.03.002
Organisation for Economic Co-operation and
Braithwaite, V., & Ahmed, E. (2005). A threat to tax morale:
Development.
The case of Australian higher education policy. Journal of

OECD. (2010). Understanding and influencing taxpayers´
compliance behaviour. Paris, France: Organisation for
Economic Co-operation and Development.
OECD. (2014). International tax terms. Retrieved June 16,
2014, from http://www.oecd.org/ctp/33967016.pdf
Pollitt, C., & Bouckaert, G. (2011). Public management
reform: A comparative analysis–new public management,
governance, and the Neo-Weberian state (3rd ed.). New
York, NY: Oxford University Press.
Randlane, K. (2013). A systematic approach to tax compli-
ance: The case of Estonia. Sovremennaâ Èkonomika:
Problemy, Tendencii, Perspektivy, 9, 73–93.
Rozenfeld, I. (1975). Süsteemanalüüs [Systems analysis].
Tallinn, Estonia: Valgus.
Schmölders, G. (1932). Steuermoral und Steuerbelastung.
Vierteljahresschrift Für Steuer- Und Finanzrecht, 6, 151–161.
(reference is to the 2006 edition The Psychology of Money and
public finance, Great Britain, Palgrave Macmillan).
Schmölders, G. (1960). Das Irrationale in der öffentlichen
Finanzwirtschaft. Probleme der Finanzpsychologie.
Hamburg, Germany: Rowohlt.
Schmölders, G. (1970). Survey research in public finance–a
Downloaded by [62.65.59.21] at 01:00 27 January 2016
behavioural approach to fiscal theory. Public Finance, 25,
300–306.
Schmölders, G. (2006). The psychology of money and public
finance. New York, NY: Palgrave Macmillan.
Srinivasan, T. N. (1973). Tax evasion: A model. Journal of
Public Economics, 2(4), 339–346. doi:10.1016/0047-2727
(73)90024-8
View publication stats
INTERNATIONAL JOURNAL OF PUBLIC ADMINISTRATION 11
Taylor, N. (2003). Understanding taxpayers attitudes through
understanding taxpayers identities. In V. Braithwaite (Ed.),
Taxing democracy: Understanding tax avoidance and eva-
sion (pp. 71–92). Aldershot, UK: Ashgate.
Torgler, B. (2003). Tax morale, rule-governed behavior and
trust. Constitutional Political Economy, 14(2), 119–140.
doi:10.1023/A:1023643622283
Torger, B. (2005). Tax morale and direct democracy.
European Journal of Political Economy, 21(2), 525–531.
doi:10.1016/j.ejpoleco.2004.08.002
Torgler, B. (2007). Tax compliance and tax morale: A theoretical
and empirical analysis. Cheltenham, UK: Edward Elgar.
Torgler, B., & Schneider, F. (2006). What shapes attitudes
toward paying taxes? Evidence from multicultural
European Countries (Discussion Paper 2117). Bonn,
Germany: The Institute for the Study of Labor.
Webley, P., Robber, H., Elffers, H., & Hessing, D. (2010). Tax
evasion: An experimental approach. Cambridge, UK:
Cambridge University Press.
Wenzel, M. (2004). An analysis of norm processes in tax
compliance. Journal of Economic Psychology, 25, 213–228.
doi:10.1016/S0167-4870(02)00168-X
Wenzel, M. (2005). Motivation or rationalization? Casual
relations between ethics, norms and tax compliance.
Journal of Economic Psychology, 26, 491–508. doi:10.1016/
j.joep.2004.03.003
Wiener, N. (1961). Cybernetics or control and communication
in the animal and the machine (2nd ed.). Cambridge, MA:
MIT Press.