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“Is Deterrence Approach Effective in Combating Tax Evasion? a Meta-Analysis” “Is deterrence approach effective in combating tax evasion? A meta-analysis” Muh Dularif https://orcid.org/0000-0002-4905-2595 AUTHORS Sutrisno T. Nurkholis Erwin Saraswati Muh Dularif, Sutrisno T., Nurkholis and Erwin Saraswati (2019). Is deterrence ARTICLE INFO approach effective in combating tax evasion? A meta-analysis. Problems and Perspectives in Management, 17(2), 93-113. doi:10.21511/ppm.17(2).2019.07 DOI http://dx.doi.org/10.21511/ppm.17(2).2019.07 RELEASED ON Thursday, 25 April 2019 RECEIVED ON Sunday, 20 January 2019 ACCEPTED ON Wednesday, 06 March 2019 LICENSE This work is licensed under a Creative Commons Attribution 4.0 International License JOURNAL "Problems and Perspectives in Management" ISSN PRINT 1727-7051 ISSN ONLINE 1810-5467 PUBLISHER LLC “Consulting Publishing Company “Business Perspectives” FOUNDER LLC “Consulting Publishing Company “Business Perspectives” NUMBER OF REFERENCES NUMBER OF FIGURES NUMBER OF TABLES 89 2 10 © The author(s) 2021. This publication is an open access article. businessperspectives.org Problems and Perspectives in Management, Volume 17, Issue 2, 2019 Muh Dularif (Indonesia), Sutrisno T. (Indonesia), Nurkholis (Indonesia), Erwin Saraswati (Indonesia) Is deterrence approach BUSINESS PERSPECTIVES effective in combating tax evasion? A meta-analysis Abstract LLC “СPС “Business Perspectives” The purpose of this paper is to present the results of a meta-analysis of the relationship Hryhorii Skovoroda lane, 10, Sumy, between determinant factors and tax evasion based on deterrence approach. Using 40022, Ukraine the meta-analysis method, each statistical result of empirical studies is converted into www.businessperspectives.org r-pearson as standardized effect size, and then synthesized into a mean effect size in order to increase power and to resolve uncertainty. Theoretically, increasing audit, tax rate and tax penalty will decrease tax evasion. However, the results show that only tax rate has a significant impact on tax evasion. Synthesizing totally 478 outcomes from articles published between 1978 and 2018, there is a robust conclusion that decreasing tax rate is an effective tool in combating tax evasion. On the other hand, audit and pen- alty are not significant in influencing tax evasion. In addition, the results of heterogene- ity analysis suggest that national culture and income level of the country are useful in explaining the impact of audit, tax rate and tax penalty on tax evasion. These findings should be of interest to policymakers. First, instead of sacrificing more resources in conducting audit or imposing more penalty, tax authorities should consider setting the Received on: 20th of January, 2019 tax rate as low as possible to diminish tax evasion. Second, considering that culture and Accepted on: 6th of March, 2019 income level influence the impact of audit and penalty on tax evasion, policymakers should consider national cultural values and income level condition when designing audit techniques and setting penalty structures. Keywords tax evasion, meta-analysis, enforcement paradigm, © Muh Dularif, Sutrisno T., deterrence approach, audit, tax rate, penalty Nurkholis, Erwin Saraswati, 2019 JEL Classification H23, K42 Muh Dularif, Doctor Candidate, Accounting Science, University of Brawijaya, Indonesia. INTRODUCTION Sutrisno T., Professor, Accounting Tax evasion is an illegal action to reduce tax liability in a way that may Science, University of Brawijaya, Indonesia. be unintended by tax law (Franzoni, 1999). As a complicated phenom- Nurkholis, Ph.D, Lecturer, enon, tax evasion generates many problems in many countries. Direct Accounting Science, University of effect of tax evasion in economic area is loss in government revenue. Brawijaya, Indonesia. For example, in the United States, Internal Revenue Service’s (IRS) ap- Erwin Saraswati, Doctor, Lecturer Accounting Science, University of proximated that between 2008 and 2010, the average annual tax gap Brawijaya, Indonesia. was USD 458 billion (IRS, 2016). Decreasing tax revenue also influenc- es social life by diminishing the government’s capability in providing public good sand social services (Mehrara & Farahani, 2016). Combining the work of Kogler, Muehlbacher, and Kirchler (2015) with their “slippery slope framework”, and Ritsatos (2014), Alm (2012), and Torgler (2006) who discussed the impact of psychological and behav- ioral economics on tax compliance and tax evasion, the determinants of tax evasion can be divided into three groups based on the power This is an Open Access article, distributed under the terms of the of control. First, factors that can be controlled by tax authorities, i.e. Creative Commons Attribution 4.0 International license, which permits audit, tax rate and penalty (Alm, 2012; Alm, Kirchler, & Muehlbacher, unrestricted re-use, distribution, 2012; Kirchler, Hoelzl, & Wahl, 2008; Ritsatos, 2014). Second, factors and reproduction in any medium, provided the original work is properly that are under the power of the government in a broad sense, i.e. tax cited. service (Alm, 2012) and trust in government (Porta, Lopez-De-Silane, http://dx.doi.org/10.21511/ppm.17(2).2019.07 93 Problems and Perspectives in Management, Volume 17, Issue 2, 2019 Shleifer, & Vishny, 1996; Ritsatos, 2014). The last group consists of social norms, personal norms (Alm, 2012; Alm et al., 2012; Kirchler et al., 2008; Ritsatos, 2014) and religiosity (Torgler, 2006) that are the factors under control of taxpayers and their community. Consequently, these three groups are known as enforcement paradigm (Alm, 2012), service and trust paradigm (Alm, 2012) and fiscal psychology paradigm (Schmolders, 1959). Therefore, the objective of this study is to find the robust conclusion related to the impact of audit, tax rate and penalty on tax evasion. In addition, considering that there is a possibility of heterogeneity in the result of meta-analysis, this study will try to find moderating variable that influences the relation- ship between these three determinant factors and tax evasion. In the next section, this paper will describe theoretical background and literature review of tax evasion and deterrence approach. In section 2, the research methodology, including study criteria and coding procedures, will be explained. Findings will be presented and continued by discussion of the result. Conclusion will be presented in the final section. 1. LITERATURE REVIEW researches, however, there is no consistent conclu- sion of the impact of these determinants on tax In the research literature, tax evasion is often used evasion. Although many studies have been con- interchangeably as an opposite of tax compliance, ducted for synthesizing the impact of determinant because both are two opposite sides of the same factors on tax compliance, but, to our knowledge, coin. Consequently, efforts in decreasing tax eva- there is no synthesized research that focuses on sion can be seen as efforts in increasing tax com- tax evasion. For example, Blackwell (2007) re- pliance. Initially, the focus of tax compliance and viewed and synthesized 20 experimental studies tax evasion research has been dominated by en- using meta-analysis method and concluded that forcement paradigm. However, in the last decade, audit, fine and public good availability would en- political factors and psychological factors are also courage tax compliance. Hofmann, Voracek, Bock, identified as important aspects that direct people and Kirchler (2017) explored socio-demographic to comply or not. factors as determinants of tax compliance. Besides the limitations related to the minimal attention of Although there is a shifting tendency from enforce- tax evasion aspect, studies that synthesize indi- ment paradigm to other paradigms, this study fo- vidual researches also have a tendency to focus on cuses on the impact of audit, tax rate and penalty, single research method. For example, Blackwell which are regarded as deterrent factors due to two (2007) only used experimental researches, and main reasons. First, as pointed out by OECD (2015), Hofmann et al. (2017) only focused on survey for taxpayers who habitually often try to manipu- studies. So, fulfilling the gap, this study will re- late system in order to minimize tax obligation, en- view systematically the studies related to impact of forcement programs still are the important tools in audit, tax rate, and penalty on tax evasion using a combating such behavior. Second, the policy relat- meta-analysis method. Capturing the period from ed to deterrence approach is relatively under con- 1978 to 2018, this study will review and synthesize trol of tax administration. Determining tax audit the researches, either based on experiment, survey, coverage ratio, changing tax rate, and deciding the or regression of secondary data. level of penalty are easier than trying to influence the tax behavior. So, the existence of disobedient Reviewing 86 individual studies published be- taxpayers and full control of tax authority in imple- tween 1978 and 2018 that consist of 478 findings, menting the deterrence approach become the fac- this study shows that in general the direction of tors that popularize enforcement paradigm. the influence of deterrent factors is consistent with the prediction of Allingham and Sandmo (1972) Although tax evasion and its determinants based and prospect theory (Kahneman & Tversky, 1979). on deterrence approach have been subject to many Audit and penalty create positive impact on tax 94 http://dx.doi.org/10.21511/ppm.17(2).2019.07
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