Trust and taxpaying: Testing the heuristic approach to collective action

Theory: Trust is a critical attitude that extends the duty heuristic developed in Scholz and Pinney (1995). The "trust heuristic" can provide the basis for a contingent compliance strategy capable of sustaining cooperative solutions to collective action problems of governance if two conditions are met. First, compliance with laws must be conditional on levels of trust in specific legal arenas. Second, a citizen's trust in government and trust in other citizens' willingness to obey the law must reflect the costs and benefits associated with obeying laws. Hypothesis: This article tests the first hypothesis in the tax arena: trust in government and in other citizens increase compliance over and above the levels expected from an internalized sense of duty to obey laws and the fear of getting caught by enforcement agencies like the IRS. Method: We test the hypotheses with regression analysis of survey and tax return data from a stratified sample of 299 middle- and upper-income taxpayers, using the newly-developed two-stage conditional maximum likelihood analysis to control for endogeneity. We extend this approach to the analysis of multi-categorical ordered dependent variables. Findings: Both dimensions of trust significantly increase the likelihood of tax compliance, even after controlling for duty, fear, selection bias, and potential endogeneity effects.