Income tax evasion is one of the principal concerns that tax authorities face. In the United States, the Internal Revenue Service (IRS) estimates that tax evasion reduced government revenue by about USD458 billion between 2008 and 2010. In Australia, the Australian Tax Office (ATO) estimates a tax gap of $8.7 billion for individuals – this is the gap between the amount of tax collected and the amount of tax that would have been collected if every Australian taxpayer was fully compliant with the law. Tax evasion is a major concern for governments because they require the tax revenue to generate economic development and finance government transfers.
One of the primary approaches for studying why individuals underreport taxes is from criminology. From a deterrence perspective, tax evaders are just like other criminals – they compare the potential benefits of tax evasion to the risks and potential costs associated with getting caught. If the benefits outweigh the perceived costs, then they evade taxes. This approach has formed the essence of the academic study of tax evasion in accounting, finance, legal and sociology literature.
Yet, there is an important limitation to this approach. Research suggests that making penalties more salient and increasing the rate of being audited (and thereby increasing the likelihood of being caught) does not reduce tax evasion as much as predicted. If tax evaders calculate the benefits minus the costs, increasing the costs should make evading taxes less tempting. But this does not seem to be the case.
A mark of good citizenship
So, what have national flags got to do with tax evasion? In my recent paper published in the European Journal of Social Psychology, I found that showing people the national flag in experiments reduces tax evasion. Seeing one’s national flag should make people more aware of their national identity, increasing their willingness to remain a part of it and to protect it. Evading taxes does not just imply cheating the government but also one’s fellow citizens.
I tested this possibility across three studies in different countries. In one experiment, I recruited American citizens and found that exposure to the red, white and blue, compared to exposure to the Canadian flag, reduced their underreporting of taxes on income from a tedious activity involving scrolling taskbars on a website to a specified point. The greater perceived importance of their American identity upon seeing the American flag statistically explained the effect. I replicated the same effect in another study with British subjects, and exposure to the Union Jack.
In a final experiment, I found that exposure to the Southern Cross reduced Australian students’ self-reported willingness to evade taxes because it increased their felt Australian identity. The three experiments, taken together, suggest that exposure to one’s national flag can heighten one’s national identity, making one less likely to evade taxes and to cheat the country and fellow citizens.
There are several limitations to this study. Perhaps the major one being that participants in the experiments had the chance to evade only minor amounts of tax (a few dollars maximum). But, in theory, the underlying motivation to not evade taxes when one sees the national flag should similarly apply to tax evasion of greater amounts. However, the findings may not apply to corporate tax evasion as the study is focused on individuals.
Indeed, flags are important national symbols, and people often “rally around the flag.” If “rallying around one’s flag” and the country means doing what is best for the country, this should also mean a lower willingness to underreport and evade taxes, for doing so would basically go against one’s identity as American, British, Australian, or any other national identity.
Flagging the task
The mere possibility that tax evasion could be reduced via exposure to national flags presents intriguing implications for policy and practice. In Australia, official government forms already feature the coat of arms but, arguably, coats of arms are not as important as the flags as a nationalistic symbol. Thus, by presenting the Australian flag on tax income forms, on paper or online, may help reduce the extent of tax evasion.
Many countries, including Australia, America, and Great Britain, do not include the flag on such documents. Canadian tax forms do but it is impossible to assess how this might be helpful in reducing tax evasion in Canada without a proper control (a group of Canadian citizens completing tax forms without the flag image).
Given the role of psychology and human behaviour in policy problems (for example, the Behavioural Insights Unit in many Australian states, including NSW and Victoria), and given the extent of tax evasion, a large-scale study that puts the flag on some tax forms but not on others may be one research and policy avenue to pursue.
That said, my research only recruited American, Australian, and British citizens. It is unlikely that exposure to national flags for non-citizens or recent immigrants would have the same effect, given that their attachment to the country should be, on average, lower than that of citizens. And indeed, the importance of national flags is country-specific. In the United States, the flag is practically on every residential doorstep, in the office; it is raised in sports games, and upon arrival at airports when coming off an international flight. In other countries, including Australia, the national flag has a much less-evident, but still important, role.
So, again, what have national flags got to do with tax evasion? Possibly a great deal. It could also help reduce revenue concerns that face governments in Australia and abroad, without the need to apply harsher penalties or to hire more auditors, which may not be as effective as it appears.
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