Does Whistleblowing on Tax Evaders Reduce Ingroup Cooperation?

Area of Science:

• Behavioral Economics
• Experimental Economics
• Public Finance

Background:

• Whistleblowing is recognized as a cost-effective tool to combat tax evasion.
• However, concerns exist regarding potential negative impacts of whistleblowing on social trust and group cooperation.
• Previous research has not empirically examined these spillover effects on ingroup cooperation.

Purpose of the Study:

• To investigate the impact of whistleblowing on tax evasion and tax auditing.
• To assess the spillover effects of whistleblowing on subsequent ingroup cooperation within a controlled laboratory setting.
• To examine the influence of foreknowledge about future cooperation tasks on tax evasion and whistleblowing decisions.

Main Methods:

• A laboratory experiment involving two consecutive phases: a tax evasion game followed by a generalized gift exchange game.
• Manipulation of two key dimensions: the presence of a whistleblowing stage and the provision of information about the second phase prior to the first.
• Utilized unchanging groups throughout both experimental phases to analyze intra-group dynamics.

Main Results:

• Whistleblowing significantly curbed tax evasion and enhanced the accuracy of tax audits.
• No statistically significant negative spillover effects of whistleblowing on ingroup cooperation were observed in the subsequent game.
• The provision of information about the second phase did not alter tax evasion or whistleblowing choices in the first phase.

Conclusions:

• Whistleblowing serves as an effective mechanism for increasing tax compliance and audit efficiency.
• The feared detrimental effects of whistleblowing on ingroup cooperation do not materialize in this experimental context.
• Transparency about future cooperative endeavors does not significantly influence initial tax compliance or whistleblowing behavior.