Taking the High Road? Compliance with commuter tax allowances and the role of evasion spillovers

This paper aims to provide field evidence on evasion spillovers as an determinant of the individual compliance decision. For this purpose, we exploit discontinuities in a widely used commuter tax allowance and employ a research design resting on a large panel of individual tax returns. We find that around 30 percent of all commuter allowance claims are overstated and, consistent with deliberate tax evasion, we observe sharp reactions of taxpayers to thresholds where the allowance discretely jumps to a higher amount. Further, we use exogenous variation in job changes to uncover spillover effects from the work environment on the individual compliance decision. These effects appear to be asymmetric: Job changers moving to companies with a higher fraction of cheaters increase their cheating. In contrast, movers to companies with a lower fraction of cheaters tend not to alter their reporting behavior. We interpret this result as consistent with a class of explanations based on information, including increased knowledge about the possibilities for non-compliance.