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This chapter examines the implications of behavioral insights for tax design, taxpayers’ decision-making, and tax compliance. With regard to tax design, the chapter discusses policymakers’ own heuristics and biases, and their catering to (or exploitation of) the biased judgments of the public at large. Regarding economic decision-making, the chapter explores the dark and bright sides of tax saliency. With regard to compliance, it explains why people pay taxes, and how this compliance might be further enhanced. Finally, the chapter explains how cognitive factors affect taxpayers’ inclination to challenge tax liability. Additionally, the chapter describes the behavioral contribution to positive and normative analyses of redistribution, by shedding new light on how people form judgments about tax progressivity; the cognitive ramifications of poverty; wealth and subjective well-being; and the choice between methods and objects of redistribution. The chapter also comments on the use of taxes as a means of modifying human behavior.

This chapter examines the relationship of corporate tax privacy and tax compliance from a new vantage point, which is called the “intercorporate perspective.” In the United States, all tax returns and return information of corporations are confidential. An unappreciated value of corporate tax privacy is that it can limit the pressure to pursue aggressive tax planning and reporting that corporate tax directors often face from significant shareholders, nontax managers, and even themselves. Corporate tax privacy provides the government with valuable strategic defenses by restraining the ability of a corporation’s stakeholders and agents to engage in “benchmarking” and “reverse engineering,” behaviors that would likely cause some tax directors to pursue more aggressive tax planning and reporting. Yet, at the same time, increased public access to certain corporate tax return information could enable the public to participate in informed debate and discussion of the corporate tax law and to question whether the governments is applying the tax law to corporate taxpayers effectively and fairly.

This chapter explores tax transparency in the context of previous governmental, private, and civil society initiatives about transparency of the last thirty years. There has been a particular focus on transparency as a mechanism to enforce taxation of large multinational enterprises (MNEs) and to ensure tax compliance by high wealth individuals, with a specific goal of addressing tax avoidance and evasion especially through the hiding by such taxpayers of income and assets in tax havens. In addition to the promotion of transparency as a key strategy for global tax enforcement, transparency has also been aimed variously at ending corruption and abuse of power by private and public agents or entities; disciplining the fiscal actions and processes of governments by constraining spending or reducing taxes; strengthening financial and other markets; building participatory democracy; protecting human rights; supporting economic development and good governance in general; and ensuring compliance with environmental and other global policies.

This chapter examines the U.S. enforcement campaign against Swiss banks that facilitated tax evasion by U.S. customers and its impact on the global regime for tax information sharing. After reviewing the legal and policy issues raised by offshore tax evasion, the chapter examines how the U.S. criminal prosecution of UBS led to the release of tens of thousands of U.S. customer names to the IRS, opening an unprecedented breach in Swiss bank secrecy. The UBS case opened the way for prosecutions of other Swiss banks; negotiations with Switzerland on tax disclosure; and U.S. adoption of the Foreign Account Tax Compliance Act (FATCA), which penalizes foreign banks that fail to disclose U.S. customer accounts. While the U.S. approach initially encountered significant resistance, many countries, including major offshore centers, concluded bilateral information-sharing agreements with the United States, while some onshore jurisdictions adopted FATCA-like legislation to fight offshore tax evasion. Eventually, the U.S. approach provided a model for multilateral reform through the OECD’s Common Reporting Standard (CRS), which provides automatic exchange of account information among numerous jurisdictions.

This chapter compares the persuasive impact of a media Sanction Threat and a Moral Appeal in order to extend the early findings of Schwartz and Orleans (1967) to learn how taxpayers process media messages and what effect the information has on their thinking about tax compliance. It shows that the persuasive force of a sanction threat is undermined because people interpret the message as being there to influence others rather than themselves.

This chapter explores the various links that exist between growing complexity, corruption, and tax evasion. Over the past three decades corruption and tax evasion seem to have increased in many countries. The growing complexity of tax systems that now require thousands of pages of laws and regulations has clearly been a determining factor. Tax laws have become increasingly difficult to interpret and to comply with. This has created an important asymmetry between clever and rich individuals who have the means to hire tax experts to prepare their tax returns and the rest. This asymmetry has also convinced many taxpayers, especially in Anglo-Saxon countries, that their taxes are higher than they actually are. The complexity and its impact on the taxpayers is likely to have been a contributing factors to the growing income inequality that has characterized recent years.