Tax evasion limits the capacity to raise revenues and to carry out economic and social policy. Reducing tax evasion is even more important in the aftermath of the current health and economic crisis, which, because of the slow-down in economic activity and employment, will result in lower corporate and personal income tax and reduced consumption tax revenues. Proposals for tax policy in response to the Coronavirus crisis include increasing tax cooperation to fight tax avoidance by multinational enterprises, addressing the tax challenges of the digitalisation of the economy and a progressive European wealth. This project investigates additional strategies, which could complement other tax policy responses to the crisis, namely exploiting personal and social communication to increase tax morale and thus tax compliance. The tax authority could devise information and communication campaigns aimed at raising taxpayers' awareness about the importance of paying taxes as a moral obligation, thus increasing the stigma attached to tax-evasion. These campaigns should also emphasise the link between tax payment and provision of government services and public goods.
The first step of the research will be the construction of a theoretical model to describe the role of tax morale and reputation in affecting individuals' taxpaying behaviour. Building on Besley et al. (2019), in our agent-based dynamic model taxpayers `live' in a network and care about their social reputation. As in Besley et al. (2019) agents decide whether to pay or to evade taxes taking into account the expected economic net benefit (balancing monetary costs and benefits from tax evasion), the subjective cost, and the reputation cost. The subjective cost from tax evasion is higher, the higher is the agent's intrinsic motivation to comply. The agent also cares about the reputation as taxpayer, which depends on the strength of the social norm in his/her reference group. This is updated following an adaptive rule that looks at the behaviour of agent's `neighbours' (the agent¿s reference group). The research will contribute to the literature in three ways. First, by investigating the mechanism by which local interactions affect tax morale and the channels by which tax morale and reputation influence tax compliance. Second, by simulating a policy intervention to enhance the population's tax compliance, by exploiting the diffusion dynamics in the network. In line with the recent debate about `nudging' taxpayers (see OECD, 2019), the tax authority could devise information and communication campaigns aimed at raising taxpayers' awareness about the importance of paying taxes as a moral obligation, thus increasing the stigma attached to tax-evasion. These campaigns should also emphasise the link between tax payment and provision of government services and public goods. Third, if data availability allows it, a statistical analysis to investigate countries' tax response to the Covid-19 shock will be implemented