Since Schmolders (1959) advanced "fiscal psychology" as a branch of public finance, a number of studies have been devoted to rational economic models of behavior. Perception of tax fairness is generally described as a multidimensional construct. One dimension of income tax fairness is preference for either progressive or proportional taxation.; The purpose of this research was to test for differences in tax evasion behavior between progressive (graduated) and proportional (flat) tax structures. A feeling of inequity arises from a perception that others should have paid more or less in taxes. Inequity theory predicts that a perception of inequitable treatment can cause behavior designed to restore interpersonal equity.; An experiment was conducted with 58 students recruited at a mid-Atlantic community college. Subjects were randomly assigned to either a progressive or proportional tax treatment. The experimental (work) task was addition of numbers for a monetary reward, and the experiment consisted of four rounds of work, filing tax returns, and paying the tax owed on reported income.; A majority of subjects in both groups (70.7%) indicated an overall preference for progressive tax rates, and subjects in the proportional group consistently reported less income than subjects in the progressive group. Although none of the tests for group differences were significant at the.05 level, the overall percentage of tax evaded by the proportional group was higher (21.24%) than the progressive group (11.02%). These results are consistent with the inequity theory prediction that compliance can be affected when individuals face a tax structure that is not consistent with perceptions of what a fair tax rate structure should be.; When the sample is partitioned into pro-progressive and pro-flat rate preference subgroups, the differences become more pronounced. Subjects favoring progressive rates (pro-progressive) in the proportional (flat) group reported less income than pro-progressive subjects in the progressive group in all rounds of the experiment, with statistically different results in rounds 2, 4, and in total. These results indicate that perceptions of equity affect tax evasion behavior. This research has implications for tax policymakers; enactment of a flat income tax may affect compliance rates and could reduce revenue collected.
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