The persistence of tax-evasion culture

Social norms such as corruption, trust or violence are persistent. If you put an Italian in Switzerland, he will be an hour late at meetings even after living there a few years. Old habits are hard to change. We've learned from previous studies that diplomats from corrupt countries don't pay their parking fines even when in New York, that soccer players from violent countries commit more fouls in the European leagues, and that second-generation migrants still have inhirited trust from their countries of origin.

Now comes a new study on the persistence of culture. Researchers from Indiana University teamed up with the US Treasury to examine cases of corporate tax evasion. They used data on more than 270,000 IRS corporate tax audits from 1996 to 2007 and measured a firm’s tax evasion using the amount of positive adjustment to the firm’s tax liability following audit. They found that corporations with owners from countries with higher corruption norms engage in higher amounts of tax evasion in the US. The authors also show that when the US government beefed up efforts to tackle evasion, these firms were less likely to adhere. As they sum up in their abstract, cultural norms can be a challenge for legal enforcement.