Tax Enforcement, Government Expenditure Transparency and Tax Compliance : Evidence from China

Based on theory from psychology and behavior economics, this paper examines the impact of tax salience on residents' compliance willingness for individual income tax. Experience evidence finds that salient information on the tax enforcement and government expenditure information disclosure significantly improves the tax compliance willingness of the treatment group. These results indicate that the deterrence effect and moral cost caused by a disloyal tax evasion increase the tax compliance willingness. Furthermore, the heterogeneity test finds that, treatment sample with different tax information capacity and information processing capability show no significant difference responses and increase their tax compliance consistently. These findings suggest that a large part of taxpayers have a low cognition of the fiscal transparency in China. The above results give useful policy implications for how to improve the individual income tax compliance.