FISCAL EXCHANGE, COLLECTIVE DECISION INSTITUTIONS, AND TAX COMPLIANCE

It is commonly believed that voluntary tax compliance is affected by the nature of the expenditures and by the manner these expenditure decisions are made. This paper reports on the results of a series of laboratory experiments designed to examine the role of fiscal exchange, the uses of tax revenues and the decision process by which these uses are selected, in individual compliance behavior. Individuals respond positively when tax proceeds are directed toward programs they approve of and when they feel they are active in the decision process.