WHY DO PEOPLE PAY TAXES

Why do people pay taxes when they have an opportunity, even an incentive, to evade? The experimental results in this paper suggest that tax compliance occurs because some individuals overweight the low probability of audit, although such overweighting is not universal. The results also indicate that compliance does not occur simply because individuals believe that evasion is wrong, since subject behavior is unchanged by the use of either neutral or loaded terms. Finally, there is evidence that individuals pay taxes because they value the public goods that their taxes finance. In short, individuals exhibit much diversity in their behavior.