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Customs, tax compliance, audit probability, second-order beliefs
Abstract:
This paper studies the role of beliefs about own performance or appearance for
compliance at the customs. In an experiment in which underreporting has a higher
expected payoff than truthful reporting we find: a large share, about 15-20 percent of the
subjects, is more compliant if they have reason to imagine that their performance
influences their subjective audit probability. In contrast, we do not find evidence for
individuals who believe that by their personal performance they can reduce the subjective
probability for an audit. Our results suggest that the power of imagination, i.e. the role of
second-order beliefs in the process of customs declarations is important and may
potentially be used to improve customs and tax compliance.
