Abstract

The purpose of this study is to examine whether (1) tax rate, (2) tax audit, (3) penalty(or with rewards) affect the tax compliance behavior using experimental data, based on the Atkinson's Theory of Motivational Strength. We conducted a between-subjects experiment(2×2×2) on Korean MBA students. We found that the interaction among tax rate, tax audit and penalty impacted significantly on the tax compliance behavior. Especially, we found that penalty was the most important factor. Also we get an experimental evidence that the more taxpayers avert the risk, the higher they report their income level. Finally, penalty with rewards policy is more effective tools than penalty alone policy for increasing the level of tax compliance. Our findings suggest that the tax administration(The National Tax Service：NTS) must lead taxpayers to comply with tax laws by increasing the current penalty level. In addition to this, the tax administration needs to consider interaction effect among tax rate, tax audit and penalty.

Keywords

• Atkinson's Theory of Motivational Strength
• Tax Compliance
• Penalty
• Rewards

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