| dc.description.abstract | Part one Experiments in Part I of this thesis study the effects of taxed and untaxed income windfalls on effort supply and tax evasion decisions. Traditional economic view within the utility maximisation framework suggests that labour supply decreases if the share of unearned income (i.e. windfalls) goes up. This has been questioned in the emerging literature from field experiments on cash transfers. It is suggested that effort or labour supply responses to cash windfalls are contextual and more nuanced. Reallocation of effort supply, the size and nature (lottery, permanent or transitory) of the windfall are among the factors that is important in determining this response. On the other hand, little or no theoretical discussion exists on tax evasion responses to income windfalls as financial incentives. I find that effort supply reduces significantly in response to cash windfalls in a lab-in-the- field experiment from Afghanistan. The response is elastic and effort provision decreases as the share of windfall increases. Subjects are endowed with cash windfalls and must choose either to provide effort by solving puzzles to earn additional income or opt out. They could choose to opt out at any point during the effort provision without losing any of their earnings. In addition, I find that effort provision is less responsive when the first dollar of subject’s earnings is not taxed. There exists a specific type of tax aversion such that subjects lower their effort provision if their windfall is taxed. In both experiments, effort supply is lowered via an income effect but there are additional tax-induced effects from taxing subject’s windfalls after the transfer has taken place. The finding on tax-induced effects are novel contribution in this study. Similarly, in the second part of the experiments, subjects had to declare their labour income and windfalls for tax purposes depending on the experiment. Tax evasion increases but the respond is not drastic to either types of windfalls. However consistent with previous experiments on tax evasion, two types of behaviour emerge: compliers and evaders, and the share of those complying is higher than that of evaders. More interestingly, I find that the most productive individuals evade the highest in both experiments. This is a robust finding such that breaking down the data into terciles: the average productive individuals evade less, and the least productive individuals evade the least. This is a novel contribution in the study of tax evasion. It is possible that the most able individuals consider taxes more disruptive and attach higher subjective value to their hard-earned income. This finding captures the evasion levels observed for wealthy individuals or legal entities who are consistently looking for loopholes to evade or avoid paying taxes. Part two The purpose of the experiments in Part II of this thesis was to explore the effects of introducing a fast-track option that is legal on the level of administrative corruption or bribery rates. The literature suggests that there are both moral and legal concerns. However, in societies where corruption is normalized, the low likelihood of punishment makes legal concerns negligible. In such ‘corruption trap’, moral concerns are the determining factor. Timely bureaucracy in public services, common in low-income countries, may give way to corruption but it can be minimized if preferential treatment is offered institutionally. In experiments in Part II of this thesis I study supply and demand for bribes separately. I observe that subjects as citizens are willing to pay extra to avoid bribery when presented with a legal channel to access services. Subjects go through a real effort task and must wait to get paid unless they choose either the cheaper bribe or the more expensive legal channel. Additionally, the bribe may imply a negative externality on one other subject as it increases the latter’s waiting period. When that is the case, subjects as citizens are less willing to choose the bribe option and prefer the more expensive legal channel. In sum, people are willing to bribe but less so when a legal channel is available or when it harms other people. On the public official’s, I observe that introducing a more expensive legal channel does not prevent them accepting bribes. The public official’s strategic concerns remain at large and the motive to maximise private gains overruns moral concerns in the experiment. These finding echoes some of the findings from field experiments on this issue. Therefore, additional measures are needed to constrain public officials who prioritise their private gains. These measures may include centrally supervised fast track options where the cost of monitoring is lower or reduced human interaction by adopting electronic procedures. I use a novel structure for the experimental design in which individuals (citizens or public officials) are fully accountable over whether bribery is enforced or not. In previous designs, it would be up to the official to enforce the bribe and ultimately carry the weight of imposing the negative externality on other citizens. Outcomes could be interfered by confounds such as fear of punishment for breaking the law, conditional cooperation i.e. the need to reciprocate when offered a bribe, and the competing bias i.e. getting competitive upon the opportunity to interact with other players. Thus, with the non-dynamic framework, subjects are not assigned roles and are left to decide solely based on their preferences, with no further strategic concerns. The pool of subjects is composed of low GDP per capita countries where bribery is understood to be widespread. This is further supported by empirical evidence from corruption perception measures such as CPI, WGI, BPI and ICRG. In accordance, in my experiment subjects coming from countries associated with higher levels of CPI are also found to be the most corrupt. Believing that others will accept bribes makes one more propense to similarly engage in corruption. Consequently, (effective) communication relative to observed and perceived corruption rates, when low, could further dampen corruption – however, the opposite could also be true. Governments should take this into account when choosing the information to be shared in anti-corruption campaigns. | en_GB |
