Insights on Motivating Tax Compliance Behavior

By William Vogeler, Esq. on June 05, 2018 | Last updated on March 21, 2019

Some behaviors are instinctual, like a predator's instinct to hunt or the prey's instinct to run.

Paying taxes is not instinctual, but you knew that. What you may not know, however, is people pay taxes primarily because of an "internalized motivation."

That means, according to one psychology study, they have a strong moral norm to comply and a sense that the fiscal system is fair. That's something your corporate clients may need to know.

Strong Moral Norm

If your decision-makers are well-informed about their tax obligations, you may not need to preach to them about their ethical duties to report taxes. They probably already have that internalized motivation.

However, it may be a good idea to talk to them about hiring someone to keep up with those duties and other compliance issues. Compliance attorneys are in demand because of increasing regulation, including tax laws.

Business owners don't always look to their attorney as a front of moral decision-making, but they know their lawyer will always tell them what they cannot do. In that way, corporate counsel can provide an "extrinsic motivation" to comply with tax laws.

According to the Applied Psychology study, people also pay taxes because of an extrinsic perception of severe penalties. The researchers talked to more than 300 business owners.

Lack of Knowledge

In their research, the investigators discovered that extrinsic motivation was usually associated with a lack of tax knowledge.

They also found that internalized motivation -- not extrinsic motivation -- predicts self-reported tax compliance. Sometimes, however, extrinsic motivation "at very high levels" outweighed internalized motivation.

That would be tax time, like when a predator comes and the prey runs.

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