We report on a series of experiments in Albania and the Netherlands, across various socio-economic groups, that allow us to compare behavioral and motivational patterns related to tax evasion. In our experiments, subjects have to decide between a random income from the 'formal sector' that will be known to the experimenter for sure and a random income from the informal sector that will only be known to the experimenter with some (audit) probability. Then, subjects have to report an income and pay taxes accordingly. If they are audited there is a fine for underreporting. This experiment was organized (separately) for high school students, high school teachers, university students, university teachers and university (non-academic) staff in Albania and the Netherlands. The results show that (i) the possibility of tax evasion increases the number of choices for the informal sector; (ii) many subjects are willing to choose an income that allows for tax evasion but report their income honestly anyway; (iii) compliance increases with the audit probability; (iv) Albanians evade taxes less than the Dutch do; (v) students evade taxes more than other groups do; (vi) the differences across groups within a country are similar in size to the differences between the two countries.

Co-author Klarita Gërxhani