Do Taxpayers Embrace Social Norms to Comply? Empirical Evidence From Indonesia

Abstract

This study explores the powerful role societal norms play in shaping taxpayers' behaviour in Indonesia, with a focus on how the prevalence of compliance influences both tax filing and payment practices. By examining the ratio of tax evaders to compliant taxpayers in specific regions, we measured the strength of these norms and explored their impact using a regression discontinuity design. Our findings highlight that stronger societal compliance norms significantly boost tax filing compliance within communities, yet they do not have a substantial effect on the amount of taxes paid. This supports our hypothesis that taxpayers' behaviour is not solely driven by deterrence mechanisms, but also by the influence of societal norms. In other words, individuals' perceptions of their peers' compliance can reinforce their own compliance behaviour, extending the economic deterrence model and offering new insights into the complexities of tax compliance.