This paper empirically examines the citizens' attitudes towards compliance using three different variables justifiability of tax evasion, justifiability of corruption and justifiability of claiming government benefits without being entitled to itin India, using the newest World Values Survey 1999-2001. Interestingly, these three aspects of rule evasion have not been intensively investigated in the literature and thus empirical findings are rare. The results indicate that similar determinants affect all three compliance variables and support the relevance of incorporating non-economic factors into the analysis of rule evasion.

Why so many people don’t evade rules, although there is a low probability of being detected, is a key puzzle in economics and other social sciences. Expected utility models emphasizing the role of punishment factors failed to convincingly solve this puzzle. However, for example, most tax compliance experiments report a higher level of income declaration than an expected utility maximization calculus would predict (see Alm, 1999; Torgler, 2002). Furthermore, in many countries the level of deterrence is too low to explain the high degree of tax compliance. It can be argued that risk aversion may help explain the high level of compliance. However, studies in Switzerland and the United States indicate that there is a big gap between the degree of risk aversion that would grant such a compliance and the degree effectively reported (see Graetz and Wilde, 1985; Alm, McClelland and Schulze, 1992; and Frey and Feld, 2002).

Including findings of other sciences such as psychology or sociology without losing the spirit of the economic foundation seems to be a promising step towards solving this puzzle. A few studies have tried to extend the traditional models incorporating psychological costs or social norms (Gordon, 1989; Bordignon, 1993; Erard and Feinstein, 1994, or Schnellenbach, 2002). In a broader sense these studies try to investigate attitudes towards paying taxes which can be seen as a proxy for tax morale: The intrinsic motivation to comply and pay taxes and thus voluntarily contribute to the public good. However, most of the attempts failed to consider how tax morale may arise or which factors have an impact on it.

Compliance in India: An Empirical Analysis, incorporating non-economic factors, rule evasion, punishment factors, maximization calculus, risk aversion, tax compliance, psychological costs or social norms, intrinsic motivation, economic foundation.