Evidence from the lab: Negatively-framed news encourages tax evasion

Tax evasion is often perceived as one of the most serious issues of public finance today. The rate of tax compliance might be affected by several factors, e.g. the rate of taxation, political culture or the media. The latter have great impact on public opinion (and therefore on the perception of the state’s ability to be economical with public spending). Media coverage on different government activities creates a particular climate in which decisions on tax evasion are made. To answer the question whether positive or negative news can encourage or discourage people from paying taxes we conduct a series of laboratory experiments. Using news headlines, subjects get the information on how state institutions are spending their budget. Our results show that while positive news slightly increases tax compliance comparing to control group, its effect is not statistically significant. On the other hand, negative news significantly increases tax evasion. Briefly - reading the mostly negative news creates tax evaders. At the same time reading positive news (eg. governmental PR) has almost no effect on the willingness to pay taxes. This conclusion is in line with the results of studies that show that negative information has more influence on people than positive (e.g. Meffert et al., 2006).