THE IMPACT OF TAX FAIRNESS DIMENSIONS ON TAX COMPLIANCE: CANADIAN

EVIDENCE

JONATHAN M. FARRAR

A DISSERTATION SUBMITTED TO THE FACULTY OF GRADUATE STUDIES

IN PARTIAL FULFILMENT OF THE REQUIREMENTS
FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY

GRADUATE PROGRAM IN ADMINISTRATION (ACCOUNTING)

SCHULICH SCHOOL OF BUSINESS
YORK UNIVERSITY,
TORONTO, ONTARIO

NOVEMBER 2011
 Library and Archives
Canada
Published Heritage
Branch
395 Wellington Street
Ottawa ON K1A0N4
Canada
NOTICE:
The author has granted a non­
exclusive license allowing Library and
Archives Canada to reproduce,
publish, archive, preserve, conserve,
communicate to the public by
telecommunication or on the Internet,
loan, distrbute and sell theses
worldwide, for commercial or non­
commercial purposes, in microform,
paper, electronic and/or any other
formats.
The author retains copyright
ownership and moral rights in this
thesis. Neither the thesis nor
substantial extracts from it may be
printed or otherwise reproduced
without the author's permission.
In compliance with the Canadian
Privacy Act some supporting forms
may have been removed from this
thesis.
While these forms may be included
in the document page count, their
removal does not represent any loss
of content from the thesis.
Canada
Bibliotheque et
Archives Canada
Direction du
Patrimoine de I'edition
395, rue Wellington
Ottawa ON K1A 0N4
Canada
Your file Votre reference
ISBN: 978-0-494-88716-5
Our file Notre reference
ISBN: 978-0-494-88716-5
AVIS:
L'auteur a accorde une licence non exclusive
permettant a la Bibliotheque et Archives
Canada de reproduire, publier, archiver,
sauvegarder, conserver, transmettre au public
par telecommunication ou par I'lnternet, preter,
distribuer et vendre des theses partout dans le
monde, a des fins commerciales ou autres, sur
support microforme, papier, electronique et/ou
autres formats.
L'auteur conserve la propriete du droit d'auteur
et des droits moraux qui protege cette these. Ni
la these ni des extraits substantiels de celle-ci
ne doivent etre imprimes ou autrement
reproduits sans son autorisation.
Conformement a la loi canadienne sur la
protection de la vie privee, quelques
formulaires secondaires ont ete enleves de
cette these.
Bien que ces formulaires aient inclus dans
la pagination, il n'y aura aucun contenu
manquant.
ABSTRACT

The purpose of this dissertation is to develop a more comprehensive understanding of

the relationship between tax fairness and tax compliance in the Canadian tax context.

Four research questions are addressed. First, what are extant dimensions of tax

fairness? Second, how should each dimension be measured? Third, what is the impact

of each dimension on tax compliance? Fourth, how does the combination of these

dimensions impact tax compliance?

The first research question is addressed by synthesizing the existing literature on tax

fairness to develop a taxonomy consisting of four underlying dimensions of tax fairness.

These dimensions are horizontal equity, vertical equity, exchange equity, and procedural

fairness. The first three dimensions are all subsets of distributive fairness, and the latter

is classified as procedural fairness.

The second and third research questions are addressed through a structural equation

modelling analysis of survey data of Canadian taxpayers. A measurement model

confirms the adequacy of the tax fairness measures, and the structural model assesses

the relation between each dimension and tax compliance. Of the four tax fairness

dimensions, only horizontal equity is significantly and positively associated with tax

compliance.

The fourth research question is addressed experimentally using Canadian taxpayers as

subjects. The structural equation analysis revealed a positive association between

iv
horizontal equity and procedural fairness, and the literature review revealed that

outcome favourability impacts the tax fairness-tax compliance association. Outcome

favourability refers to a taxpayer's refund versus balance due position. My experiment

examined the combined impact of horizontal equity, procedural fairness, and outcome

favourability on tax compliance, and found that taxpayers in a balance owing position in

the low horizontal equity and low procedural fairness conditions were the least

compliant relative to any other condition. There were also significant main effects of

both horizontal equity and outcome favourability on tax compliance. These findings

suggest that compliance can be improved if Canadian taxpayers are in refund positions

at time of tax filing, and that improving perceptions of horizontal equity has some effect

on improving compliance in Canada.

v
ACKNOWLEDGEMENTS

First, I would like to thank God for his guidance in my life, and for providing me with the

opportunity and financial wherewithal to leave the rat race for the last 5 years so that I

could do something more enjoyable and fulfilling with my life. Proverbs 3:5-6: Trust in

the Lord with all thine heart; and lean not unto thine own understanding. In all thy ways

acknowledge him, and he shall direct thy paths.

Special thanks to my family for their encouragement and support. Mom, Dad, Sarah,

Zack (Corrie), Tom, and Caitlin: you are the best.

Special thanks to my thesis supervisor, Linda Thorne, for her patience, advice,

commitment, and timely feedback, and the other members of my committee, Marcia

Annisette and Peter Darke, both of whom gave valuable feedback. Thanks also to

Cameron Graham, director of the Accounting PhD program at the Schulich School of

Business, for his encouragement and interest in my academic career, and to the other

professors who provided advice or feedback somewhere along the way. Thanks to

Teresa Colavecchia, Filomena Petrilli, Maria Rizzuto, and Paulette Burgher: your

administrative support was invaluable. And, I suppose I should acknowledge my PhD

colleagues, who were reasonably fun to have around, when they were around: Kobboon

Chotruangprasert, Carolyn MacTavish, Eksa Kilfoyle, Akhila Chawla, and Hong Fan.

vi
Thanks to Oana Branzei for teaching me about structural equation modelling. It did

come in handy, after all. Thanks to Hugh McCague of the Statistical Consulting Service

at York University for his review of my experimental data.

I should also acknowledge Elaine Capper, my piano teacher. Learning the music of Bach,

Barber, Chopin, Dohnanyi, MacDowell, and Schubert helped me to keep my sanity.

Thanks to whoever had the foresight to create the Elora-Cataract Trailway. I biked

hundreds of kilometres on it during my time as a doctoral student, and it helped to

recharge my academic batteries.

Finally, I acknowledge financial support from York University, the Institute of Chartered

Accountants of Ontario, the government of Ontario, and the government of Canada.

Thanks also to Allister Young & Jennifer Li at Brock University for allowing me to teach

there part-time during my doctoral studies.

vii
TABLE OF CONTENTS

CHAPTER 1- Introduction 1

CHAPTER 2 - Taxonomy, Literature Review & Hypotheses Development 6

2.1 Multidimensionality of Tax Fairness 6

2.2 Literature Review: Impact of each Dimension on Compliance (HI) 12
2.2.1 Horizontal Equity 13
2.2.2 Vertical Equity 14
2.2.3 Exchange Equity 15
2.2.4 Procedural Fairness 16
2.2.5 Cross-national Differences 17
2.3 Combined Impact of Dimensions 19
2.3.1 Distributive Fairness and Procedural Fairness 22
2.3.2 Distributive Fairness, Procedural Fairness and
Outcome Favourability (H2) 23
2.4 Summary 25

CHAPTER 3 - Survey 27

3.1 Instrument Development 27

3.2 Web Survey 29
3.3 Survey Sample 30
3.4 Data Inspection 30
3.5 Demographic Variables 32
3.6 Reliability Analysis 33
3.7 Principal Component Analysis 33
3.8 SEM Analysis 34
3.8.1 Measurement Model: The Tax Fairness Construct 35
3.8.2 Measurement Model: The Tax Fairness Construct and
Tax Compliance 38
3.8.3 Structural Model 39
3.9 Summary & Discussion 41

CHAPTER 4 - Experiment 43

4.1 Design and Subjects 43

4.2 Procedure 44
4.3 Measures and Manipulations 44
4.4 Demand Effects 47

viii
 4.5 Analysis of Manipulation Checks and Tests of Biased Fairness
Perceptions 48
4.6 H2: Results & Interpretation for Compliance Measure 50
4.7 Summary & Discussion 53

CHAPTER 5 - Conclusion 54

5.1 Contributions 54
5.2 Implications 55
5.3 Limitations 59
5.4 Future Research 60

REFERENCES 61

LIST OF TABLES

Table 1 Sources of Existing Measurements of Tax Fairness Dimensions 74

Table 2 Descriptive Statistics of Survey Responses 75
Table 3 Frequencies for Demographic Variables 76
Table 4 Cronbach Alphas for Final Measures 79
Table 5 Principal Component Analysis 80
Table 6 Regression Results from Survey 81
Table 7 Correlation matrix of independent and dependent variables 82
Table 8 Overall ANCOVA Results 83
Table 9 Cell Means for Experimental Conditions 84

FIGURE 1 Graphs of Two-way Interactions of ANCOVA with Manipulation

Checks 85

LIST OF APPENDICES

Appendix A Tax Fairness-Tax Compliance Literature Review 86

Appendix B Final Survey Questions 100
Appendix C Survey Webpages (final version, edition #1) 103
Appendix D Structural Model 111
Appendix E Regression Results for Subsets of the Sample 112
Appendix F Experimental Scenarios 117

ix
CHAPTER 1- Introduction

In Canada in 2010, personal taxes comprised nearly 65% of income tax revenues,

representing the largest single source of government revenues, more than triple the

next largest revenue source (CRA 2010). Although the Canada Revenue Agency (CRA),

the primary tax collector for the Government of Canada, reported to Parliament that in

general, taxpayers are complying with their obligations, they noted that there are

sectors of concern,1 and that the dollar value of non-compliance is significant (CRA

2010). Based on their review programs in 2010, the CRA estimated that 15.4% of claims

or deductions made by individuals were non-compliant, and identified $14.4 billion in

non-compliance (CRA 2010).

In Canada in 2010, the CRA spent approximately $1.8 billion for 'reporting compliance'

(CRA 2010). 'Reporting compliance' is synonymous with unintentional and intentional

non-compliance. The more serious concern is intentional non-compliance, i.e. tax

evasion, the focus of this thesis. Although tax research shows that tax sanctions by tax

authorities are effective in deterring tax evasion (e.g. Trivedi et al. 2003; Aim 1991),

there is a substantive cost associated with the use of sanctions. Therefore, finding ways

to encourage voluntary compliance is an important and cost-effective objective for the

CRA.

1 construction, home renovations, hospitality, taxi, automotive repairs and sales, and tourism.

1
Tax compliance refers to the behavior of reporting all income and deductions in

accordance with tax laws. However, taxpayers may not intend to report all income and

deductions. Thus, what taxpayers intend to do and what they actually do may be

different. The link between tax compliance intentions and actual tax compliance

behavior is not straightforward, and involves mechanisms such as threat of detection

and risk of sanctions. Nevertheless, tax researchers tend to focus on tax compliance

intentions because they are a proxy for behavior (Bobek et al. 2003). Similarly, I focus

on tax compliance intentions in this thesis, and use the term "tax compliance" to refer

to tax compliance intentions.

The tax compliance literature reveals many factors associated with tax compliance

(Slemrod 2007, Slemrod & Yitzhaki 2002, Aim 1999, Andreoni et al. 1998, Cuccia 1994,

Fischer et al. 1992, Jackson & Milliron 1986). For example, increased severity of

sanctions and increased probability of detection are associated with greater incidence of

compliant tax reporting (Bergman 2001). Taxpayers with increased tax liabilities,

smaller refunds, or larger amounts of additional tax owed at filing, in comparison to

prior years, tend to make less compliant tax reporting choices (Copeland & Cuccia 2002).

Taxpayers are most likely to cheat if they have the opportunity to do so (Blanthorne &

Kaplan 2008). Social norms can improve tax compliance when taxpayers identify with a

group to whom the norms are attributed (Wenzel 2004). Taxpayers with high moral

reasoning are likely to be influenced less by their self-interest and more by universal

ethical principles when making tax compliance decisions (Trivedi et al. 2003).

2
One socio-behavioral factor that has been associated with tax compliance is tax fairness

(Maroney et al. 1998). Fairness is a judgment arising from actual or imagined

comparisons involving oneself or oneself and others (Van den Bos et al. 2006; Folger &

Cropanzano 2001,1998). Fairness is a perception (Reuben & van Winden 2010), and in

this thesis the term "fairness" is used as such. Fairness in a personal tax context

involves comparisons across different areas or "dimensions" of tax, since tax fairness is a

multidimensional construct (Gerbing 1988).

Most of the time, the literature shows a positive association between fairness and tax

compliance (e.g. Schweitzer & Gibson 2008; Siemrod 2007). Early literature focused on

general fairness, but it appears fairness is multidimensional, and that different

dimensions have different associations with tax compliance (Palil 2010, Verboon &

Goslinga 2009). In addition, there appear to be different associations between tax

fairness and tax compliance across different national contexts (Cummings et al. 2009,

Azmi & Perumal 2008; Richardson 2008, 2006a, 2006b, 2005a, 2005b, Torgler &

Schneider 2007, Tsakumis et al. 2007, Aim & Torgler 2006, Riahi-Belkaoui 2004), and

depending upon different moderators (Hartner et al. 2011). Therefore, a complete

understanding regarding which dimensions of fairness are likely to impact compliance in

the Canadian tax context remains to be understood.

To address this gap, I identify four tax fairness dimensions in the existing tax fairness-tax

compliance literature and consider their association with tax compliance in Canada.

3
These dimensions are horizontal equity, vertical equity, exchange equity, and procedural

fairness. Horizontal equity means that taxpayers in similar circumstances should pay

similar amounts in taxes. Vertical equity means that taxpayers in different

circumstances should pay different amounts of taxes. Exchange equity refers to the

amount of taxes paid relative to government services received. Procedural fairness

refers to whether the processes used by a tax authority are applied in an equitable

manner. My literature review also reveals that outcome favourability, which refers to

whether or not a taxpayer owes money or is owed money, also appears to influence the

tax fairness-tax compliance association.

Next, I develop measures of these four dimensions, and, using a survey and structural

equation modelling analysis, evaluate the validity and reliability of these measures. All

measures have Cronbach alphas in excess of 0.8. I also assess the individual impact of

these dimensions on tax compliance, and find significant support only for the horizontal

equity dimension in the Canadian tax context. Finally, using an experiment, I find that a

combination of horizontal equity and procedural fairness impacts compliance only when

outcome favourability is included. And, taxpayers who owe money and perceive both

low horizontal equity and low procedural fairness are the least compliant relative to any

other combination of conditions.

The remainder of this thesis is structured as follows: In Chapter 2,1 address the first

research question by developing a taxonomy of four tax fairness dimensions from the

4
existing tax fairness-tax compliance literature. Chapter 3 addresses the second and

third research questions by developing measures for each dimension and assessing the

extent to which each dimension individually impacts tax compliance in Canada. Chapter

4 addresses the fourth research question by developing an experiment to test a

horizontal equity x procedural fairness x outcome favourability interaction. Chapter 5

sets out the contributions, implications of the research, limitations, directions for future

research, and concludes.

The results of this research are useful for the Canadian government and tax policy

makers who may contemplate developing low-cost alternatives for tax compliance by

utilizing tax fairness initiatives.

5
CHAPTER 2 - Taxonomy, Literature Review & Hypotheses Development

In this chapter, I examine the tax fairness-tax compliance literature to understand the

multidimensional nature of tax fairness and to identify individual dimensions, thereby

addressing the first research question, which is to identify extant dimensions of tax

fairness. The literature review also reveals the individual impact of dimensions on tax

compliance. And, there appear to be cross-national differences, which suggests the

importance of Canadian-specific research on tax compliance (cf. Richardson 2005b).

Through this examination, I also identify that outcome favourability appears to be an

important intervening variable between tax fairness and tax compliance (cf. Verboon &

Goslinga 2009).

2.1 Multidimensionality of Tax Fairness

Gerbing (1988) was the first to confirm that tax fairness was a multidimensional

construct. Gerbing (1988) deconstructed tax fairness into four dimensions: general

fairness, exchange equity, attitude towards taxation of the wealthy, and preferred tax

rate structure. In addition to general fairness, four underlying dimensions emerged in a

follow-up study by Christensen et al. (1994): fairness of personal payment level,

exchange with the government, tax rate structure, and fairness of special provisions.

Later, Christensen & Weihrich (1996) identified five dimensions of tax fairness: exchange

with the government, tax rate structure, fairness of special provisions, overall fairness,

and personal fairness. These studies were all conducted in the United States.

6
Outside the United States, other studies have identified that tax fairness is a

multidimensional construct. Richardson (2005a) identified five underlying tax fairness

dimensions in the Australian context: general fairness, exchange with the government,

fairness of special provisions, tax rate structure, and self-interest. Richardson (2006b)

identified six dimensions of tax fairness in the Hong Kong context: general fairness, tax

rate structure, middle income earners' tax burden, exchange with government, self-

interest, and fairness of special provisions for high income earners. Tan & Chin-Fatt

(2000) identified three dimensions in a New Zealand student sample: personal fairness,

tax rate fairness, and income level fairness. Azmi & Perumal (2008) investigated how

Malaysian taxpayers perceive tax fairness, and identified three dimensions: general

fairness, tax structure, and self-interest.

These dimensions are essentially distributive. Distributive fairness refers to the fairness

of resource allocations (Kirchler 2007), i.e. how a tax liability is allocated to individual

taxpayers. Wenzel (2002a) unpacks distributive fairness into three dimensions:

horizontal equity, vertical equity, and exchange equity. This trio of distributive

dimensions is generally accepted in the tax literature (e.g. Maroney et al. 2002, Trivedi

et al. 2003). Each of these dimensions is now explained:

• Horizontal equity means that similarly situated taxpayers should pay the same

amounts in taxes. For instance, two single taxpayers with no dependents who

each earn the same amount and type of income should have similar tax

7
 liabilities. Horizontal equity involves a comparison between taxpayers' income

amount and tax liability amount with regard for individual circumstances.

• Vertical equity means that taxpayers who have more ability to pay taxes should

pay more in taxes. That is, it is fair for a high income earner to have a larger tax

liability than a low income earner because the high income earner has a greater

ability to pay. Vertical equity also captures the principle of proportion in

taxation: wealthy individuals could be taxed more in proportion to their wealth

than a less wealthy individual because the higher income earner has a greater

ability to pay. Proportional taxation is reflected by increasing marginal tax rates

as income increases.

• Exchange equity refers to whether or not the benefits or services a taxpayer

receives from the government represent good value for the amount of tax

dollars paid.

Each of horizontal, vertical and exchange equity can be thought of as a resource

allocation decision, i.e. tax liabilities allocated to taxpayers based on tax rates and

income level (horizontal and vertical equity), or government benefits and services

allocated to taxpayers in exchange for tax dollars paid (exchange equity).

The dimensions identified by Gerbing (1988), Christensen et al. (1994), Christensen &

Weihrich (1996), Richardson (2005a), and Richardson (2006b), Tan & Chin-Fatt (2000),

8
and Azmi & Perumal (2008) seem to be synonymous with horizontal, vertical, and

exchange equity. Thus, the three distributive dimensions identified by Wenzel (2002a)

can be reconciled with the studies that have identified the multidimensionality of tax

fairness. For example:

• 'Attitude towards taxation of the wealthy' is synonymous with vertical equity,

i.e. that wealthy taxpayers should pay more in taxes because they have a greater

ability to pay.

• 'Tax rate structure' encompasses both horizontal and vertical equity: taxpayers

with similar incomes should be taxed at the same rate (horizontal equity), and

taxpayers with higher incomes should be taxed at higher rates because of their

greater ability to pay (vertical equity).

• 'Fairness of special provisions' has aspects of both horizontal and vertical equity.

Two taxpayers who earn similar incomes may have different circumstances for

which a special tax provision, such as a tax credit for a disabled dependent, is

available; in this instance, horizontal equity is affected. On the other hand, two

taxpayers who earn different incomes may also have circumstances for which a

special tax provision is available. The fairness of utilizing this special tax

provision given differences in ability to pay is impacted by vertical equity.

• 'Self interest' is similar to exchange equity in that taxpayers desire services from

the government in exchange for their tax dollars to maximize their utility. 'Self

9
 interest' is also impacted by both horizontal and vertical equity, since a

taxpayer's after-tax cash is a function of the tax liability allocated to them on the

basis of their relative income and tax rates.

Additionally, it appears that in some instances tax fairness also encompasses procedural

dimensions as well as distributive dimensions (Colquitt 2001). Kazemi (2009), Verboon

& Goslinga (2009), Kirchler (2007) and Wenzel (2003) agree that procedural fairness is a

part of tax fairness.2 Procedural fairness refers to whether or not the processes

accompanying resource distributions are applied in an equitable manner (Reithel et al.

2007, Kirchler 2007). In the broader fairness literature, fairness is at minimum a two-

factor structure consisting of distributive and procedural fairness (Colquitt 2001). When

extended to the tax context, it follows that tax fairness is also distributive and

procedural.

From a theoretical perspective, distributive fairness is consistent with equity theory,

which suggests that individuals compare their ratios of inputs to outputs to make

fairness judgments (Adams 1965). And, Thibault and Walker (1975) specifically found

support for the importance of procedural fairness in a legal context where they found

that procedural fairness enhanced the acceptance level of distributions. There is

additional theoretical support, referent cognitions theory (Folger 1986), which suggests

2 Wenzel (2003) also includes retributive fairness in his framework, which refers to the fairness of
sanctions and reactions to the breaking of norms. Retributive fairness does not appear in the tax fairness-
tax compliance literature, with two exceptions (Saad 2011, 2009). Therefore, the most appropriate
conceptual framework for analyzing the existing tax fairness-tax compliance literature would encompass
both distributive and procedural fairness.

10
that fairness encompasses both distributive and procedural components. This theory

also suggests that there are complementary aspects of the joint impact of distributive

and procedural dimensions of fairness: Folger (1986) found that the most negative

reactions to a resource allocation occur when distributions are worse than anticipated,

and when the procedures that cause or accompany the distributions are unfair. There is

also widespread empirical evidence that fairness must be considered in terms of both

distributions and procedures (Bies 2005; Brockner & Wiesenfeld 2005; Viswesvaran &

Ones 2002; Folger & Cropanzano 2001; Hauenstein et al. 2001; Brockner & Wiesenfeld

1996; Vermunt & Tornblom 1996; Cropanzano & Folger 1991).

In sum, in the tax context, distributive fairness can be unpacked into three underlying

dimensions: horizontal equity, vertical equity, and exchange equity. Procedural fairness

has only recently emerged in the tax fairness-tax compliance literature, and is

unidimensional in this literature.3 Thus, to answer research question #1,1 have

identified four extant dimensions of tax fairness: horizontal equity, vertical equity,

exchange equity, and procedural fairness. Although this four-dimension taxonomy may

not be exhaustive, it reflects the current empirical and theoretical status of tax fairness

dimensions in the tax fairness-tax compliance literature.

3 There is evidence that procedural fairness may be multidimensional (Colquitt 2001). Future research
can consider this possibility in the tax context.

11
2.2 Literature Review: Impact of each Dimension on Compliance (HI)

The next objective of the literature review is to identify how the four dimensions in the

taxonomy individually impact the tax fairness-tax compliance association, and whether

there are other variables that may impact the tax fairness-tax compliance association.

Findings from this review will be used to develop hypotheses for the association

between each dimension and tax compliance.

Items in this review date from 1974 through 2011.4 1974 marked the first time a

behavioral tax thesis was completed with a fairness component (Spicer 1974). Using the

ABI Inform database and Google Scholar database, I examined articles and theses from

accounting, tax, ethics, psychology, law, and social science journals with a tax fairness

component, and found 58 tax fairness-tax compliance studies in which this association

was studied explicitly. My tax fairness-tax compliance literature review is a chart that

appears in Appendix A.

In the literature review, 8 studies contain horizontal equity, 8 contain vertical equity, 22

contain exchange equity, and 15 contain procedural fairness. Other studies contain

general fairness or a hybrid measure of distributive fairness. Some studies contain

multiple dimensions. Not all studies empirically test the association between tax

fairness dimensions and tax compliance (Spicer 1974, Bordignon 1993, Feld & Frey 2007,

Kirchler et al. 2008).

4 Through June 30, 2011.

12
The four dimensions from the taxonomy and their respective associations with tax

compliance are discussed next.

2.2.1 Horizontal Equity

Saad (2009), Kirchler et al. (2006), Trivedi et al. (2003), and Wenzel (2002a) found a

positive association between horizontal equity and tax compliance. Maroney et al.

(2002) provided taxpayers with three explanations for the perceived fairness of taxing

social security benefits (corresponding to horizontal, vertical equity and exchange

equity), and found that the horizontal equity explanation had the least consistent

positive effect on both acceptance of the explanation and on the perceived fairness of

taxing social security benefits. Nevertheless, horizontal equity was still relevant for

taxpayers' compliance decisions.

Saad (2009) was set in Malaysia, Kirchler et al. (2006) and Wenzel (2002a) in Australia,

and Trivedi et al. (2003) in Canada. Trivedi et al. (2003) investigated 'tax equity', which

they identified as exchange equity and horizontal equity, and hypothesized that a main

effect of an increase in exchange inequity by increasing the tax rate would not impact

compliance when horizontal equity was present. However, they appeared to measure

only horizontal equity rather than exchange equity, since they manipulated relative tax

rates rather than public goods (cf. Moser et al. 1995). Thus, further research is needed

in the Canadian context to distinguish the effects of horizontal equity from exchange

equity, and to clarify the results of Trivedi et al. (2003).

13
Empirically, there appears to be a positive association between horizontal equity and tax

compliance. This discussion leads to the following hypothesis:

Hla: Horizontal equity is positively associated with tax compliance in Canada.

2.2.2 Vertical Equity

Vogel (1974), Maroney et al. (1998), Maroney et al. (2002), and Kirchler et al. (2006)

found a positive association between vertical equity and tax compliance. Saad (2009)

found no positive association.

The first four empirical studies cited above show generally that there is a positive

association between vertical equity and tax compliance. Although Saad's (2009) results

were different, her study was Malaysian while the other studies were set in Sweden, the

United States and Australia, which suggests that there may be cross-national differences

that impact the association between vertical equity and compliance. Although all four

countries use progressive tax rates, Malaysia's tax rates are historically the lowest and

the spread between tax brackets is the lowest. Thus, perceptions of vertical equity may

be different in Malaysia because of differences in tax rate structure.

Since Canada has progressive tax rates more similar to Sweden, the United States and

Australia than Malaysia (PWC 2011), i anticipate that Canada likely will show a similar

association between vertical equity and tax compliance.

This discussion leads to the following hypothesis:

14
Hit,: Vertical equity is positively associated with tax compliance in Canada.

2.2.3 Exchange Equity

Exchange equity is positively associated with tax compliance in Vogel (1974), Spicer &

Lundstedt (1976), Scott & Grasmick (1981), Warneryd & Walerud (1982), Wallschutzky

(1984), Porcano (1988), Aim et al. (1992), Maroney et al. (2002), Kim (2002), King &

Sheffrin (2002), Wenzel (2002a), and Richardson (2006b). There was no significant

positive association between exchange equity and tax compliance in Mason & Calvin

(1978), Keenan & Dean (1980), and Saad (2009).

Mason & Calvin (1978) asked two questions about state government and compliance,

and Keenan & Dean (1980) asked one question about government benefits and

compliance (see Appendix A). It is possible that these studies did not find significant

results because of inadequate or incomplete measures. Saad (2009) was conducted in

Malaysia, while the other studies were set in Australia, Hong Kong, Sweden, and the

United States. There may be national differences in terms of what government services

are provided or how taxpayer dollars are used that vary in Malaysia vis-a-vis the other

countries. For example, Malaysia is a 'newly industrialized country', a term which

denotes a traditionally less developed country which has made profound structural

changes to its economy under conditions of a fast growth rate (Bozyk 2006).5 This fast

5 Malaysia is a second-generation newly industrialized country. First-generation newly industrialized

countries, such as Hong Kong, commenced their economic restructuring in the mid 1960's, whereas

15
growth rate requires massive amounts of government spending on infrastructure,

technology, and other capital-intensive projects. Thus, perceptions of exchange equity

may be different for taxpayers in newly industrialized countries relative to industrialized

countries.

Since Canada is more like the industrialized countries Australia, Hong Kong, Sweden, and

the United States than the newly industrialized country Malaysia, I anticipate that

Canada likely will show a similar association between exchange equity and tax

compliance.

This discussion leads to the following hypothesis:

H l c : E x c h a n g e e q u i t y is p o s i t i v e l y a s s o c i a t e d w i t h t a x c o m p l i a n c e i n C a n a d a .

2.2.4 Procedural Fairness

The existing literature, which has been examined in various countries but not Canada,

demonstrates that procedural fairness is positively associated with tax compliance in

Porcano (1988), Worsham (1996), Wenzel (2002a), Murphy (2004a), Murphy (2004b),

Murphy (2005), Murphy & Tyler (2008), Murphy (2008), Hartner et al. (2008), Verboon

& Goslinga (2009), Yong & Rametse (2010), and Verboon & van Dijke (2011).

Thus, I anticipate the following hypothesis:

second-generation newly industrialized countries commenced their economic restructuring in the mid
1980's (Bozyk 2006, p.164).

16
H l a : P r o c e d u r a l f a i r n e s s is p o s i t i v e l y a s s o c i a t e d w i t h t a x c o m p l i a n c e i n C a n a d a .

2.2.5 Cross-national Differences

The development of the hypotheses revealed that cross-national differences may exist

in the fairness-compliance association. Tax fairness-tax compliance has been examined

throughout the world, including Australia, Canada, Hong Kong, Malaysia, Netherlands,

New Zealand, Norway, Scotland, Sweden, the United Kingdom, and the United States,

which has the greatest representation, in 22 studies. Some studies made specific cross-

national comparisons of fairness perceptions and showed cross-national differences. In

particular, Richardson (2005b) and Gilligan & Richardson (2005) compared fairness

perceptions of taxpayers in Australia and Hong Kong, and Saad (2011) compared

fairness perceptions of taxpayers in New Zealand and Malaysia. These studies revealed

some significant differences in tax fairness perceptions across different dimensions,

which suggests the importance of nationally specific investigations of tax fairness and

compliance.

There are several reasons as to why perceptions of fairness may differ cross-nationally.

For example, Lewis et al. (2009) suggest that the way taxes are framed, i.e. as a gain or

loss, may differ cross-nationally. It is possible that framing effects may influence

fairness perceptions. Aim & Torgler (2006) found that tax morale, i.e. an individual's

intrinsic willingness to pay taxes, differs cross-nationally. Thus, differences in collective

tax morale cross-nationally may influence fairness perceptions. McGee et al. (2010)

17
found that taxpayer perceptions of positive and negative use of taxpayer dollars by

governments differs cross-nationally. Thus, taxpayers in a country where the

government provides a certain service could view it as a positive use of taxpayer dollars,

while taxpayers in a different country where the government provides the same service

could view it as a negative use of taxpayer dollars. Thus, perceptions of positive and

negative use of taxpayer dollars could affect tax fairness perceptions, especially

exchange equity. Differences in tax authority administration policies with respect to

things like tax treaties, transfer pricing agreements, and detection rates seem to differ

cross-nationally (Lewis et al. 2009, Borkowski 1996), which could affect perceptions of

procedural fairness. And, Haufler & Wooton (1999) find that country size affects

competition for foreign direct investment, which in turn affects tax rates, and therefore

fairness perceptions. Thus, although we don't know exactly why perceptions of tax

fairness may differ from country to country, we do know they differ, so it is important to

do a country specific study.

There is only one study that examines tax fairness and compliance in Canada (Trivedi et

al. 2003). Trivedi et al. (2003) use the term 'tax equity' to refer to both exchange equity

and horizontal equity, appear to measure only horizontal equity, and find it is positively

associated with tax compliance. This finding is consistent with the association

hypothesized above. However, much more is required to be learned about the tax

fairness-tax compliance association in Canada, not only to clarify the results of Trivedi et

18
al. (2003) concerning horizontal equity, but to investigate the association between the

other three dimensions of tax fairness and tax compliance.

2.3 Combined Impact of Dimensions (H2)

The fourth research question is, How does the combination of tax fairness dimensions

impact tax compliance? In reality, dimensions do not operate exclusively in isolation,

especially since distributions are often accompanied by procedures. Understanding the

combined impact of dimensions is important because there may be complementary

effects among dimensions such that unfairness in one dimension can be offset with

fairness in another dimension, thereby improving the likelihood of tax compliance.

Referent cognitions theory (Folger 1986), identified earlier, provides support for this

association.

The tax fairness-tax compliance association is complex and not well understood

(Verboon & Goslinga 2009). To date no study has identified any variable that impacts

the association between each individual dimension and tax compliance (e.g. horizontal

equity-compliance). However, when fairness is construed more broadly as distributive

and procedural, my literature review revealed that outcome favourability may likely

impact joint impact of distributive and procedural fairness on compliance as an

intervening variable (Verboon & van Dijke 2007, Hartner et al. 2011). Other studies

have found an association between outcome favourability and tax compliance, such that

(un)favourable outcomes are positively associated with (non)compliance (Wenzel

19
2002a, Copeland & Cuccia 2002, Murphy 2004a, Murphy 2005). Skitka et al. (2003)

conducted a meta-analytic review of 89 studies in which they considered whether

distributive fairness was a distinguishable construct from outcome favourability.6 Skitka

et al. (2003) found that outcome favourability is important to understanding distributive

fairness, and recommend that future research investigate outcome favourability as a

separate construct from distributive fairness.

Outcome favourability refers to whether someone receives a positive or negative result

(Kulik & Ambrose 1992), or the extent to which an individual receives a beneficial or

valued result (Burnett et al. 2009). Generally, outcome favourability in the tax context

refers to situations where a taxpayer recovers monies paid to a tax authority or pays

additional monies to a tax authority. It most commonly refers to a taxpayer's filing

position.

A taxpayer's tax liability, which is a function of horizontal and vertical equity, is not to be

confused with the taxpayer's filing position. Recall that horizontal equity means that

taxpayers in similar circumstances should pay similar amounts in taxes, and vertical

equity means that taxpayers in different circumstances should pay different amounts of

taxes. Thus, a taxpayer who earns $50,000 in a given year and has a tax liability of

$5,000 will perceive horizontal equity if she can compare her personal situation (e.g.

6 To illustrate the difference between outcome favourability and distributive fairness, consider an
example from Skitka et al. (2003). A child who receives a slice of cake that is double in size relative to her
siblings has received a favourable outcome (getting a piece of cake is a positive and beneficial result); but,
unless the size of the piece of cake was justified by adherence to a normative standard (e.g. need or
merit), this allocation is distributively unfair.

20
number of dependents, amount of medical expenses) with a referent who is similarly

situated in terms of number of dependents and amount of medical expenses, and who

earns a similar income, and has a similar tax liability. The taxpayer who earns $50,000

and has a tax liability of $5,000 will perceive vertical equity if she can compare herself

with someone who earns more or less income than herself, and who has a tax liability

that is greater than hers (if that taxpayer earns more income than she does) or less than

hers (if that taxpayer earns less income than she does).

The tax filing position is conceptually independent of tax fairness perceptions. The tax

filing position is a function of total tax liability at time of filing less total income taxes

paid to the tax authority, whereas perceptions of tax fairness (horizontal and vertical

equity) result from comparisons with tax liabilities, income amounts, and personal

circumstances. The taxpayer who earns $50,000 and has a total tax liability of $5,000

will be in a refund position if she or her employer has remitted greater than $5,000 in

income taxes to the tax authority, or a balance owing position if she or her employer has

remitted less than $5,000 in income taxes to the tax authority. Thus, the filing position

represents either an excess or a 'catch-up' of income tax payments for a fiscal period,

and is simply a mechanical calculation. Nevertheless, taxpayers could be in a balance

due filing position, experience dissatisfaction, and confound negative affect from that

filing position with fairness perceptions of their underlying tax liability. Conversely,

taxpayers could be in a refund filing position, experience satisfaction, and confound

21
positive affect from the filing position with fairness perceptions of their underlying tax

liability.

2.3.1 Distributive Fairness and Procedural Fairness

Just two studies in the tax fairness-tax compliance literature examine the combined

impact of dimensions (Moser et al. 1995, Kim et al. 2005). Both studies examined the

combined impact of two distributive dimensions: horizontal equity and exchange equity.

Moser et al. (1995) found that horizontal equity is positively associated with tax

compliance, but only when low exchange equity was allowed to interact with it. Moser

et al. (1995) found no main effect for their horizontal equity manipulation on its own.

Kim et al. (2005) did a follow-up study to Moser et al. (1995), manipulated levels of

low/high exchange equity across a high horizontal equity condition, and did not find a

significant interaction, although they did find a significant main effect of horizontal

equity on tax compliance.

Apart from these two studies, my literature review failed to reveal any study that

considered vertical equity in combination with other dimensions, nor any study that

considered any combination of procedural fairness with any dimensions of distributive

fairness. Of particular relevance, the organizational behavior and psychology literatures

reveal a robust empirical association for the joint impact of procedural and distributive

fairness. Brockner & Wiesenfeld (1996) review 45 studies in the organizational behavior

and psychology literatures that found a significant distributive fairness by procedural

22
fairness interaction. In the broader accounting literature, only Libby (2001) examined

the combined impact of distributive fairness and procedural fairness. Libby (2001)

examined the effects of fair budget targets (distributive fairness) and fair budgeting

process on individual performance. Libby (2001) found that individual performance was

low only when there was no fair dimension at all, i.e. in the condition of low distributive

fairness and low procedural fairness. These findings are consistent with referent

cognitions theory (Folger 1986).

Referent cognitions theory (Folger 1986) suggests that negative reactions to a resource

allocation decision occur when two conditions are met: 1) distributions are worse than

anticipated, and 2) the procedures that give rise to or accompany the distributions are

unfair. Referent cognitions theory (Folger 1986) suggests that the combination of both

unfair distributions and unfair procedures elicits lower compliance than other

combinations of conditions. However, perceived fairness from a distribution

(procedure) will moderate the negative affect from perceived unfairness from a

procedure (distribution). When extended to the tax context, the combination of low

distributive fairness and low procedural fairness should elicit lower compliance than

other combinations of conditions.

2.3.2 Distributive Fairness. Procedural Fairness and Outcome Favourabilitv (H2)

My review of the tax compliance literature failed to reveal an investigation of the joint

impact of fairness dimensions with outcome favourability, despite empirical evidence

23
for a distributive fairness-procedural fairness association (Brockner & Wiesenfeld 1996),

distributive fairness-outcome favourability association (Skitka et al. 2003), and

procedural fairness-outcome favourability association (Brockner & Wiesenfeld 2005).

Colquitt & Chertkoff (2002) examined the effects of providing an explanation on

procedural fairness, distributive fairness, and task motivation across favourable and

unfavourable outcome conditions. Although their three-way interactions involved

explanation provision, outcome favourability, and outcome expectations, they used

procedural fairness and distributive fairness as dependent variables, and found a

significant three-way interaction only when procedural fairness was the dependent

variable. Thus, the combination of distributive fairness, procedural fairness, and

outcome favourability as independent variables remains to be explored. Given that

outcome favourability appears to intervene in the fairness-compliance association (e.g.

Verboon & van Dijke 2007), examining outcome favourability while simultaneously

considering the combined impact of fairness dimensions may provide insight into

taxpayer compliance.

From a theoretical perspective, fairness heuristic theory (Lind 2001) suggests that

people's satisfaction with social exchanges is determined by the favourability of an

outcome and the perceived fairness of the exchange process. It posits that individuals

react more positively to an unfavourable outcome if they perceive the decision process

to be fair rather than unfair (the "fair-process effect"). Conversely, when an outcome is

favourable, individuals react positively regardless of the perceived fairness of the

24
decision process (Brockner 2002). Thus, fairness heuristic theory suggests that outcome

favourability appears to moderate the combined association between procedural

fairness and distributive fairness. In the tax context, taxpayers should react most

negatively when they experience an unfavourable outcome accompanied by an unfair

procedure.

The empirical evidence for the joint impact of distributive fairness and procedural

fairness, the empirical evidence for the moderating role of outcome favourability on the

fairness-compliance association, and the theoretical perspectives provided by referent

cognitions theory (Folger 1986) and fairness heuristic theory (Lind 2001), lead to the

following hypothesis:7

H2: Compliance is lowest when distributive fairness is low, procedural fairness is low,

and the outcome is unfavourable versus the other conditions when distributivefairness is

high and/or procedural fairness is high and/or the outcome is favourable.

Chapter 4 contains an experiment to test this hypothesis.

2.4 Summary

In this chapter, I developed a taxonomy of the four tax fairness dimensions extant in the

tax fairness-tax compliance literature: horizontal equity, vertical equity, exchange

equity, and procedural fairness. These dimensions can be classified as distributive

7 This approach is consistent with Maxwell & Delaney (2004, p.331, 375), who recommend to analyze
interactions before considering main effects.

25
fairness and procedural fairness, consistent with the frameworks of Wenzel (2003) and

Kazemi (2009). This taxonomy is reconcilable with existing literature on tax fairness

dimensions and with theories of fairness. The literature review results generally indicate

a positive association between each dimension and tax compliance intentions.

Accordingly, I develop hypotheses predicting a positive association between each

dimension and tax compliance in the Canadian context.

I also predict the joint impact of distributive and procedural dimensions of tax fairness

on tax compliance with the moderating impact of outcome favourability. My literature

review revealed the importance of outcome favourability and led to the distribution

fairness x procedural fairness x outcome favourability interaction, which I will test

experimentally.

In the next chapter, I develop measures of the four dimensions in the taxonomy, and

conduct SEM analysis on the measurement model and structural model. This chapter

will be followed by a chapter that outlines the experiment used to test H2.

26
CHAPTER 3 - Survey

In order to test the association between the different dimensions of fairness and tax

compliance, I need reliable and valid measures of all four dimensions of tax fairness.

Previous research has often combined and overlapped the different dimensions, which

resulted in inconsistent results, and hampered my ability to use pre-existing measures

to isolate each dimension's association with tax compliance, respectively.8 Accordingly,

in this chapter, I develop measures for each dimension: horizontal equity, vertical

equity, exchange equity, and procedural fairness.

I then analyze each dimension using SEM analysis. Analyzing the measurement model

will enable me to assess the reliability and validity of each measure, and analyzing the

structural model will enable me to test HI and assess the individual impact of each

dimension on tax compliance.

3.1 Instrument Development

To develop measures for each tax fairness dimension, I followed 5 steps:

1) examined the tax literature for existing measures;

2) used an expert panel;

8 A review of the tax fairness literature reveals that dimension confusion has led to measurement
weaknesses. For example, Roberts (1994) purported to measure general fairness, but actually asked
questions about specific distributive dimensions. When measuring the "relative fairness of the income
tax system", which is general fairness, he used eight questions that measured horizontal, vertical, and
exchange equity. Thus, he was measuring general fairness by using other dimensions of tax fairness,
although he implicitly recognized the multidimensional nature of distributive fairness.

27
3) sent measures to subjects as a preliminary test;

4) tested and refined each measure based on reliability and validity of preliminary

findings (four times);

5) developed a final measure.

Table 1contains a chart which lists literature sources containing existing measures for

each dimension. I used or modified these pre-existing measures. I also considered tax

court cases,9 and reviewed the initial questions with an expert panel of 10 tax academics

from Canadian universities.10 I retained only those questions that were unanimously

approved by all 10 academics. I also developed questions about tax compliance after

reviewing existing measures and discussing them with the expert panel. I pre-tested the

tax fairness dimension and tax compliance questions on 78 undergraduate business

students.

I also included demographic questions about gender, age, income level, whether or not

the respondent usually prepares his/her own tax return, whether or not the respondent

had ever been audited by the CRA, and whether or not the respondent had ever had

dealings with the CRA. In the survey, the demographic questions were optional,

9 To obtain a better understanding of procedural fairness in the tax context, I considered court cases in
which taxpayers had opposed the CRA over some procedural issue: Canada v. Telfer (2009 FCA 23); Chow
v. The Queen (2009 TCC 90); Deschenes v. The Queen (2008 TCC 655); Faber v. The Queen (2007 TCC 177);
Grosh v. Canada (2007 FC 654); Dort Estate v. Canada (2005 FCA 1201); Zins v. The Queen (2005 TCC 786).
10 Names and institution affiliation available upon request.

28
whereas the other questions pertaining to tax fairness and tax compliance were all

mandatory.

My survey underwent four iterations after the pre-test. I used a revised instrument

each time, in which I modified existing questions, deleted questions, and performed

correlation, factor, and reliability analyses.11 The respondents were different each time.

601 respondents completed the fourth and final instrument, which had 29 questions.

The remainder of this chapter pertains to the fourth and final instrument. Appendix B

contains the final questions.

3.2 Web Survey

I conducted a web survey using York University's UCCASS v. 1.8 survey software. I

considered Couper's (2008) guidelines when choosing the survey layout.12 I prepared

two editions of the survey with different question orders. Both versions contained 24

tax fairness questions and 5 tax compliance questions. The survey had a 'yorku.ca' web

address to increase face validity. Appendix C contains the webpages from the first

edition of version four.

11 There were 367 usable responses from the first instrument, which had 40 questions pertaining to
fairness and compliance. There were 478 usable responses from the second instrument, which had 34
questions. There were 472 usable responses from the third instrument, which had 24 questions. The
Cronbach alphas from the third instrument were as follows: horizontal equity (0.810); vertical equity
(0.868); exchange equity (0.788); procedural fairness (0.740); and compliance (0.880). I did a fourth
version to see if I could get all dimensions to have Cronbach alphas in excess of 0.8.
12 For instance, whether to use radio boxes or entry-check boxes.

29
3.3 Survey Sample

To recruit participants for each version of the survey, I hired a marketing research firm

to distribute my link to a sample of adult Canadian English-speaking taxpayers. Panelists

were incented using a point system, and received 33 points for completing the survey

from the host firm. Respondents received an initial invitation to my survey, and clicked

on the link. After completing the survey, respondents were automatically directed to

the website of the firm, at which time they received instructions for obtaining their

points. Respondents had a unique user ID and password provided by the firm, which

they entered on the firm's website. Thus, respondents could only complete the survey

once.

The firm had a database of approximately 34,000 panelists. Respondents were

randomly chosen by the software at the firm. The panel manager at the firm selected

respondents using three parameters: age, geographic region, and gender. 50% were

male. A total of 1,575 panelists were invited.13 Each received one reminder after the

initial invitation. 601 respondents participated (38.2% response rate).

3.4 Data Inspection

I did a preliminary data inspection, following the suggestions in Field (2009), using SPSS

software. I deleted all responses with identical answers and two responses with missing

13 458 were 18-34; 607 were 35-54; 510 were 55+; 303 were from Atlantic Canada; 128 were from
Quebec; 555 were from Ontario; and 589 were from the western provinces.

30
gender responses, leaving 593 usable responses. 277 (46.7%) of the retained responses

were completed by males. Descriptive statistics for each measure are included in Table

2. Frequencies of demographic variables are reported in Table 3.

The data is ordinal, and was not normally distributed. Histograms, stem-and-leaf plots

and Q.-Q plots confirmed the non-normality diagnosis. I also examined skewness and

kurtosis values. No skewness or kurtosis measures exceeded ±2.0. Thus, skewness and

kurtosis do not appear to be problematic. As a result of the non-normality, I used non-

parametric tests in my analysis (Field 2009).

Since I have two different editions of the survey, I compared responses across these

conditions to test for significant differences.14 The Mann-Whitney test is suitable for

this purpose (Field 2009).

Of the 593 responses, 298 were from edition one and 295 were from edition two.

Among the 29 fairness and compliance questions, there were no significant differences

(p<0.05) in scores among respondents, with eight exceptions.15 However, the effect size

for each was under 0.2, which is small. Thus, it is reasonable to believe that the order of

the questions did not affect the overall responses.16

14 The software reports the average time for completion. For edition one, the average time for
completion was 11minutes, 57 seconds. For edition two, it was 7 minutes, 20 seconds.
15 Ql, Q3, Q4, Q16, Q17, Q18, Q19, Q23.
161 also did a regression analysis to check whether question order interacted with any of the fairness
dimensions in affecting the association with tax compliance. When I regressed the interaction term on
the average compliance score, only two questions (Q3, Q21) had a significant interaction, p<0.05. These

31
3.5 Demographic Variables

I did Mann-Whitney tests (at a 95% level of significance) on all remaining indicators to

control for dichotomous demographic variables. For gender, there were six questions

with significant differences.17 Among taxpayers who prepared their own tax return

versus did not prepare their own tax return, there was one question with significant

differences.18 Among taxpayers who had been audited by the CRA versus had not been

audited by the CRA, five questions were significantly different.19 Among taxpayers who

had had dealings with the CRA versus those who had had no dealings, there were fifteen

questions that were significantly different.20 These results show that it will be useful to

perform further analysis on subsets of the sample, particularly for taxpayers who had

had dealings with the CRA. However, when I did a regression analysis to determine

whether the variable that captured dealings with the CRA interacted with any of the

fairness dimensions in affecting the association with tax compliance, only one

procedural fairness question had a significant interaction term (Q21, p=0.01). Thus, it

appears unlikely that compliance results will be differentially affected because of

subjects who had had dealings with the CRA.

results further suggest that question order did not likely have a significant impact on compliance
intentions.
17 Ql, Q2, Q3, Q4, Q12, Q25.
18 Q2.
19 Q3, Q9, Q18, Q22, Q23.
20 Ql, Q2, Q6, Q7, Q9, Q10, Q15, Q17, Q20, Q21, Q22, Q25, Q27, Q28, Q29.

32
3.6 Reliability Analysis

I did reliability analysis to calculate the Cronbach alphas for each fairness dimension and

for compliance. For behavioral research, the minimum acceptable Cronbach alpha is 0.6

(Kerlinger & Lee 2000), although Nunnally (1978) recommends 0.7 as the minimum. I

maximized the Cronbach alphas by deleting several indicators where appropriate. My

results are tabulated in Table 4.21 All measures have Cronbach alphas in excess of 0.8.

3.7 Principal Component Analysis

I conducted a principal component analysis on the measures with orthogonal rotation

(varimax). The Kaiser-Meyer-Olkin measure verified the sampling adequacy for the

analysis, KMO = 0.799 ('good' according to Field 2009). Bartlett's test of sphericity (x2

(171) = 5830, p<0.001) indicated that correlations between items were sufficiently large

for principal components analysis. Table 5 shows the factor loadings after rotation. Five

factors were extracted, corresponding to the four tax fairness dimensions and

compliance intentions. All factor scores exceeded 0.7, which is well above the 0.2

recommended for sample sizes of around 600 (Stevens 2002). Thus, the principal

component analysis provides preliminary evidence that the measures load on the

appropriate dimensions.

21For comparison, Saad (2009) had alphas of 0.689 for exchange equity, 0.854 for horizontal equity, and
0.805 for vertical equity. She did not measure procedural fairness or compliance.

33
3.8 SEM Analysis

I used SEM analysis to assess the factorial validity of my constructs using a

measurement model. SEM is a particularly appropriate methodology for three reasons:

1) it provides a theoretically error-free measure of latent variables; 2) it can measure

construct validity; and 3) it can simultaneously examine relations among constructs. I

used AMOS software (v.19.0) to conduct the analysis.22

It is necessary to assess the factorial validity of each factor by constructing a

measurement model. To this end, it is necessary to determine which indicators (i.e.

survey questions) should be used to measure each factor (dimension). The minimum

number of indicators needed for a factor is three (Ding et al. 1995), with four to six

22 Two important assumptions when undertaking SEM are that the data are of a continuous scale and that
they have a multivariate normal distribution. My data is continuous. However, as noted earlier, it is
unlikely that Likert data will have a multivariate normal distribution, as is the case with my data. There
are several remedies to manage the problem of non-normality. West et al. (1995) review some of these
remedies, which include using an asymptotically distribution-free estimator, bootstrapping, and
transformation of non-normal variables. There is no rule-of-thumb for choosing a remedy, although the
choice of remedial measure depends on the extent of the non-normality as well as the sample size. A
remedy may also be chosen using trial-and-error (Field 2009). Conversely, transformed data may be more
difficult to interpret, and may lead to conclusions or results that differ significantly from the non-
transformed data, depending on the method of transformation.
I performed sensitivity analysis, using non-transformed data and transformed data with a Box-Cox
transformation, as suggested by West et al. (1995) and van Montfort et al. (2009). A Box-Cox
transformation is suitable for arbitrary metrics, such as Likert scales, where it is not crucial to preserve the
scale of measurement (West et al. 1995).
After a transformation, the univariate skewness and kurtosis of the transformed data should be assessed
to determine the improvement, if any, in the distribution of the new variable. Although the Box-Cox
transformed data removes the skewness problem (all values 0), the kurtosis is much more pronounced.
There were no significant differences in my results, regardless of whether I used non-transformed or Box-
Cox transformed data.

34
 TO
being ideal (Yang et al. 2010). After the reliability analysis was completed, there were

a sufficient number of indicators for each factor: each had between three and five

indicators.

There are five factors which need to be measured: four tax fairness dimensions, and one

for tax compliance. I did a separate SEM analysis for the fairness dimensions to analyze

the propriety of the four dimensions, then did further SEM analysis to include

compliance.

3.8.1 Measurement Model: The Tax Fairness Construct

I initially grouped all fairness dimensions together, allowed them to correlate with each

other, and performed SEM analysis. First, I examined the parameter estimates.

Correlations should not exceed 1.0; variances should not be negative; and covariance

and correlation matrices should be positive definite. It is also important to ensure that

standard errors are not excessively large or small (although both of these sizes are

subjective), and that the parameter estimates are significant (at a 0.05 level).

Nonsignificant parameters should be deleted from the model (Byrne 2009).

For all fairness dimensions, all parameter estimates were positive, standard errors were

all low, and all parameters were statistically significant.24 There were no negative error

23 Yang et al. (2010 at 122-3) note, "Lengthy ordinal scales...pose challenges for structural equation
modeling (SEM) if all the items are used as indicators of a latent construct. For instance, a model could
have too many parameters to estimate relative to the available sample size, resulting in reduced power to
detect important parameters. In addition, it might not fit the data sufficiently well because individual
items may have less than ideal measurement properties, leading to the rejection of a plausible model."

35
variances. At the recommendation of Byrne (2009), I also examined the standardized

residuals and the modification indices to check for model misspecification.

Standardized residual covariances in excess of 2.58 indicate discrepancies. There were

two covariances that slightly exceeded 2.58. The modification indices were relatively

small. Thus, the model appears to be a good fit.

I analyzed the goodness-of-fit statistics to assess the robustness of the retained

indicators. The x2 = 197.8 with 71 degrees of freedom, p<0.001. This statistic is not

sensitive to large sample sizes, so additional goodness-of-fit measures should be

examined (Byrne 2009; Hooper et al. 2008). The root mean square error of

approximation (RMSEA) was 0.055, the Goodness-of-Fit Index (GFI) was 0.955, the

Adjusted Goodness-of-Fit Index (AGFI) was 0.9B3, and the Comparative Fit Index (CFI)

was 0.965. All meet the generally accepted minimum standards (RMSEA should not

exceed 0.06, and each of the GFI, AGFI and CFI should be greater than 0.9), indicating

that the measurement model for fairness dimensions is a good fit (Byrne 2009). This

SEM analysis indicates that tax fairness is appropriately modelled with four unique

dimensions.

I checked to see if the model fit improved if tax fairness was a one-factor structure, i.e.

no distinction between distributive or procedural dimensions. All goodness-of-fit

24 No definitive criteria for 'small' and 'large' standard errors have been established because standard
errors are influenced by the units of measurement as well as the magnitude of the parameter estimate
(Byrne 2009). All were below 0.1in the final survey.

36
measures were not close to meeting the generally accepted minimum standards, which

indicates a very poor fit to the data, and confirms that tax fairness is much better

modeled with four unique dimensions, i.e. distributive and procedural fairness, the two-

factor structure.

To test for convergent validity, I examined the correlations among indicators (Byrne

2009). If convergent validity is present, I should find a statistically significant correlation

among the indicators, i.e. each set of indicators within each construct should correlate.

All these correlations were statistically significant at the 0.05 level. Therefore,

convergent validity is established for each construct.

To test for discriminant validity, I constrained the covariance among all dimensions to

1.0, and then compared the x2 statistic from the constrained model to the

unconstrained model. If the constrained and unconstrained models differ significantly

on a chi-square difference test, discriminant validity is established (Garver & Mentzer

1999). The x2 statistic from the constrained model was 355.3 (df=77), and the x2 statistic

from the unconstrained model was 197.8 (df=71). This difference (157.5; df=6) is

statistically significant at the 0.01 level, thereby providing evidence that there is

adequate discriminant validity among indicators. As an additional check, I followed the

above procedure for each pair of dimensions at a time. All chi-square difference tests

were statistically significant at the 0.01 level, thereby providing further evidence of

discriminant validity.

37
The measurement model for the tax fairness construct appears to be robust because the

goodness-of-fit statistics are all high, and convergent and discriminant validity are

established.

3.8.2 Measurement Model: The Tax Fairness Construct and Tax Compliance

I grouped the four dimensions of the fairness construct with compliance and performed

SEM analysis. All dimensions were allowed to correlate with each other and with

compliance. SEM analysis showed that all parameter estimates were positive, standard

errors were all low, and all parameters were statistically significant. There were no

negative error variances. There was one covariance that slightly exceeded 2.58, and the

modification indices were relatively small. Thus, the model appears to be a good fit.

I analyzed the goodness-of-fit statistics to assess the robustness of the indicators. The

X2 = 262.1 with 109 degrees of freedom, p<0.001. The RMSEA was 0.049, the GFI was

0.951, the AGFI was 0.931, and CFI was 0.966. All exceed the generally accepted

minimum standards stated earlier, which indicates that the measurement model for tax

fairness and tax compliance is well-fitting.

I tested convergent and divergent validity the same way as above. Convergent validity

was present because the correlation coefficient between each set of related indicators

is statistically significant. The highest correlation coefficient was 0.811, between two

indicators for compliance (CI1-CI2), which suggests that multicollinearity is not a

problem, since the correlation coefficient does not exceed 0.9 (Field 2009).

38
Furthermore, the variance inflation factor between this pair did not exceed 1(higher

than 10 is problematic, per Field (2009)). Divergent validity was present because the x2

statistic from the constrained model was 570.5 (df=119), and the x2 statistic from the

unconstrained model was 262.1 (df=109). This difference (308.4; df=10) is statistically

significant at the 0.01 level, thereby providing evidence that there is adequate

discriminant validity among indicators. As an additional check, I followed the above

procedure for each pair of dimensions at a time. All chi-square difference tests were

statistically significant at the 0.01 level, thereby providing further evidence of

discriminant validity.

The measurement model for tax fairness and compliance appears to be robust because

the goodness-of-fit statistics are all high, and convergent and discriminant validity are

established. Furthermore, all the measures have high internal consistencies, as

evidenced by Cronbach alphas in excess of 0.8.

3.8.3 Structural Model

Once I determined that the measurement model for tax fairness and compliance was a

good fit, I tested for the validity of a causal structure by building and analyzing a

structural model. The structural model specifies the relationships among the latent

constructs. The SEM analysis does not prove causation, but will test the strength of the

association between tax fairness dimensions and compliance.

39
The structural model has one dependent factor - tax compliance - and four

independent factors - the four tax fairness dimensions. Each of the four tax fairness

dimensions are shown as exerting an influence on tax compliance, along with the

measures for each dimension. The structural model is depicted in Appendix D.

Table 6 shows the regression coefficients along with statistical significance (at the 0.05

level) of the regression paths for each tax fairness dimension and tax compliance. There

is a significant path for horizontal equity only.25

Thus, the results of this analysis indicate that only horizontal equity is significantly and

positively associated with tax compliance.26 Consequently, I accept Hla, but reject Hlb,

Hlc, and Hld.

I also did regression analysis for subsets of the sample, following the post-hoc test

results per section 3.5. Appendix E shows the subsets I used, along with the regression

results, and further analysis.

Notwithstanding the lack of significance of procedural fairness, there are still two

findings of interest with respect to horizontal equity and procedural fairness. One is

that there was a significant positive correlation of 0.409 between horizontal equity and

25 In version 3 of the survey, the structural model findings were identical: there was a significant main
effect only for horizontal equity.
261 performed some sensitivity analysis around the regression results. When none of the fairness
dimensions were allowed to covary, the results did not significantly change. When I re-ran the analysis
after deleting each of procedural fairness, exchange equity, and vertical equity, horizontal equity
remained the only statistically significant path. When I ran the analysis with just each fairness dimension
and compliance, only the path between horizontal equity and compliance was statistically significant
(p=0.031).

40
procedural fairness (p<0.001). The other is that when the non-significant vertical equity

and exchange equity paths in the structural model were deleted, leaving just horizontal

equity and procedural fairness, the procedural fairness path became significant

(p=0.021).27 These results suggest that procedural fairness in combination with

horizontal equity has some bearing on tax compliance.28

3.9 Summary & Discussion

In this chapter I developed four separate and unique measures of tax fairness based on

four separate dimensions. I also developed a measure of tax compliance. The measures

for the four tax fairness dimensions and tax compliance all have Cronbach alphas in

excess of 0.8. The measurement model confirms the validity of these measures.

Goodness-of-fit statistics indicate a very well-fitting model.

Results from the structural model support Hla, i.e. a positive association of horizontal

equity on tax compliance (p<0.001). There were no other dimensions with significant

positive associations. However, when vertical equity and exchange equity were

removed from the structural model, the procedural fairness path became significant

27 The horizontal equity path remained significant (p<0.001).

28 Henseler & Chin (2010) compare four approaches for analyzing interaction effects in a structural
equations model. One of these is the orthogonalizing procedure of Little et al. (2006), which they
recommend in part for its prediction accuracy. Accordingly, I used this orthogonalizing procedure, which
checks for moderation. There was no evidence that procedural fairness moderated any of the distributive
fairness dimensions. I also conducted moderation analysis for horizontal equity and procedural fairness
when vertical and exchange equity were excluded. There was still no evidence of moderation. These
findings imply that the joint effect of horizontal equity and procedural fairness on compliance appears to
be additive, not interactive. Consequently, these findings provide impetus for including another variable
(outcome favourability) whose absence could account for the lack of predicted two-way interaction.

41
(p=0.021), which suggests that procedural fairness does have some bearing on tax

compliance.

The significant horizontal equity-compliance association corroborates the findings of

Saad (2009), Kirchler et al. (2006), Kim et al. (2005), Trivedi et al. (2003), Maroney et al.

(2002) and Wenzel (2002a).

In the next chapter, I develop an experiment to test H2.

42
CHAPTER 4-Experiment

The purpose of this chapter is to describe the experiment to test H2. H2 is as follows:

H2: Compliance is lowest when distributive fairness is low, procedural fairness is low,

and the outcome is unfavourable versus the other conditions when distributive fairness is

high and/or procedural fairness is high and/or the outcome is favourable.

Horizontal equity emerged as the only significant distributive fairness dimension from

the structural equation analysis. Consequently, horizontal equity is the only distributive

dimension that will be tested.

4.1 Design and Subjects

The experiment employed a 2 (horizontal equity: fair, unfair) x 2 (procedural fairness:

fair, unfair) x 2 (outcome: favourable, unfavourable) between-subjects design. The

dependent variable was compliance.

Subjects were Ontario taxpayers, recruited from the same firm as for the survey. A total

of 159 subjects completed an experimental questionnaire and correctly answered post-

experimental questions indicating they understood the manipulations. 68 of these

subjects were male. The average age was 47.4 years, and the average years of tax-filing

experience was 27.9 years. Cell sizes ranged from 16 to 26.

43
4.2 Procedure

Subjects were issued an invitation from the firm via e-mail to participate in an on-line

survey about income taxes. They were randomly assigned to experimental conditions.

Subjects read some introductory information about the Home Buyers' Plan, and were

told that they would be reading a scenario that was adapted from a case handled by the

Office of the Taxpayers' Ombudsman.29 The Home Buyers' Plan and Office of the

Taxpayers' Ombudsman was a cover story designed to disguise the true intent of the

experiment.

Subjects were asked to imagine that they were Jason, the protagonist in the scenario.

Jason was chosen as a name because it was ordinary and male, since men tend to be

less compliant than women (Chung & Trivedi 2003). In addition to his salary, Jason

earned a one-time cash payment of $4,000, which provided an opportunity for non­

compliance (cf. Blanthorne & Kaplan 2008). Subjects were asked how much of the

$4,000 Jason would report. Subjects then completed some follow-up questions which

included manipulation checks and demographic questions.

4.3 Measures and Manipulations

Compliance intentions, the dependent variable, was measured with four questions (two

from the survey and two from Van Dijke & Verboon (2010). The Cronbach alpha was

29 Adapted from the Taxpayers' Ombudsman 2009-2010 Annual Report, p.13. Available online:
http://www.oto-boc.gc.ca/rprts/2009-2010/rprt-nnl0910-eng.pdf

44
0.821. The average of the scores from these four questions was the dependent variable.

Results did not significantly change when individual questions were used.30

Horizontal equity was manipulated using tax rates, consistent with Moser et al. (1995)

and Trivedi et al. (2003). In the scenario, Jason and his associate earned the same

amount and type of income, but Jason paid tax at a rate of 50%/20% (unfair/fair)

whereas his associate paid tax at a rate of 20% always.31 Horizontal equity was

measured with the measure developed in the survey.32 The Cronbach alpha was 0.950.

Outcome favourability was manipulated using a refund versus balance due situation,

which is consistent with Bobek et al. (2007), who found that taxpayers experience

psychological gains from being in a refund position versus a balance due position, even

to the extent that they will overpay instalments to get a refund at year-end. In the

scenario, the taxpayer initially received a refund of $250, but then a penalty is wrongly

assigned by the CRA to the taxpayer. In the balance due condition, the taxpayer owes

301 also asked two questions about actual amounts of cash income a taxpayer would be likely to report,
one from the perspective of Jason, and one from the perspective of the taxpayer him/herself. When I
measured compliance using dollar amounts, there were no significant regression results. I attribute this
finding largely to social desirability bias. Only 33 (20.7%) of 159 respondents indicated that Jason would
report $0 cash tips income, and 107 (67.2%) respondents indicated that Jason would report $4,000 (the
maximum). However, in response to the [reverse-scored] question, "Under the circumstances, Jason
might choose not to report all of the cash to the CRA", only 6 strongly disagreed; and, in response to the
question, "Jason would be likely to declare the $4,000 cash to the CRA", only 16 strongly agreed. This
inconsistency between reported income and answers to the questions implies a social desirability bias.
The mean income that taxpayers reported for Jason was $2,950 and for themselves was $3,179.
31 In a pre-test, 38 of 40 respondents felt that a tax rate of 50% was unfair and 20% was fair, so that is why
I used those rates.
32 Wenzel (2002) found that procedural fairness and horizontal equity had a positive association on tax
compliance when tax compliance was operationalized as reporting additional income (extra income above
one's salary) or reporting of deductions. Thus, my experiment is consistent with Wenzel (2002) because I
use a compliance strategy of reporting additional income.

45
an additional $840 (the same amount used in Worsham 1996). In the refund condition,

the taxpayer has the penalty reversed and receives their refund of $250.

The measure for outcome favourability was three questions from Fondacaro et al.

(2002). The Cronbach alpha was 0.947. The CRA is entirely to blame in the scenario,

since it allows taxpayers to assign all the blame to an external agent, which increases

the feeling of resentment (Brockner 2002).33 In the horizontal equity manipulation,

subjects were given tax rates rather than tax liability amounts to minimize the risk that

they would confound the balance due/refund with the underlying tax liability, i.e.

confound outcome favourability with horizontal equity.

Procedural fairness was manipulated by allowing a taxpayer a voice/no voice when

learning of the CRA's error. Voice/no voice as a manipulation is consistent with the

procedural fairness literature (e.g. Libby 2001). The procedural fairness manipulation

was independent of the outcome favourability manipulation. Voice was measured with

three questions from Fondacaro et al. (2002) and two questions from De Cremer & Tyler

(2007). The Cronbach alpha was 0.885.

All 8 scenarios are contained in Appendix F, along with manipulation checks and follow-

up questions. A correlation matrix of independent and dependent variables is shown in

Table 7.

33 Pre-tests confirmed that having the CRA entirely to blame produced a stronger manipulation. Pre-tests
also confirmed that the refund and balance owing amounts were effective, despite the refund being
smaller than the balance owing, which seems to confirm the finding of Bobek et al. (2007) that taxpayers
enjoy the psychological benefits from obtaining a refund, seemingly irrespective of its magnitude.

46
4.4 Demand Effects

Given that the participants were quite experienced with respect to tax filings, the

manipulations may have struck them as implausible and alerted them to the purpose of

the study. In particular, the horizontal equity manipulation used a sizeable differential

in tax rates (50% vs. 20%), and participants in the low procedural fairness condition

were told that they could not contact the CRA, both of which are not entirely realistic.

To check for demand effects, subjects were asked an open-ended question about the

purpose of the experiment at the very end of the experiment ("what do you think was

the purpose of this study?").

Most subjects did not correctly guess that it was a study about income tax perceptions,

although a few people made generic comments about attitudes about income tax. In

the low/low/unfavourable condition, which is the condition where demand effects were

most likely to occur since both low horizontal equity and low procedural fairness were

present, 44 respondents initially completed the experimental instrument. Of these 44

responses, only 3 thought the study had something to do with tax fairness, which

provides some assurance that demand effects were not problematic.34

34 In the low/low/unfavourable condition, when answering the question, What do you think was the
purpose of this study?, one subject replied, "to demonstrate deficiencies in the tax system of Canada and
it seems its unfairness" [sic]; another replied, "to see if taxes are fair to people"; and another replied, "if
people think they are treated fairly by the government."

47
4.5 Analysis of Manipulation Checks and Tests of Biased Fairness Perceptions

ANCOVA was performed using the manipulation checks for each type of fairness as

dependent variables, and levels of horizontal equity, procedural fairness, and outcome

favourability as independent variables. The manipulation checks captured subjects'

perceptions of both types of fairness. This ANCOVA will determine if perceptions of

fairness were biased by outcome favourability, where bias is indicated by more positive

ratings of fairness for more favourable outcomes. There is considerable evidence from

the psychology literature of a self-interest bias in judgments of fairness (see Babcock et

al. 1995 for a review). There is also an economics literature suggesting that individuals

interpret information in a self-serving manner, such that outcomes can bias fairness

perceptions, for both distributive fairness (Bolton & Ockenfelds 2000) and procedural

fairness (Bolton et al. 2005). Thus, it is useful to know if subjects' fairness perceptions

were biased by self-interest (outcomes) when interpreting the results (discussed later).

In addition to the expected main effect of the horizontal equity manipulation on

horizontal equity perceptions (F=83.57, p<0.001), there was also a significant main

effect of outcome favourability (F=11.04, p<0.001) and a significant outcome

favourability x horizontal equity interaction (F=5.47, p=0.02). This interaction is graphed

in Figure 1. The outcome favourability main effect suggested that perceptions of

horizontal equity were higher for more favourable outcomes than less favourable (mean

35After I did the overall ANCOVA, detection was the only significant covariate, so I included it in this
analysis.

48
of 4.22 vs. 3.44). However, the interaction showed outcome favourability significantly

increased perceptions of horizontal equity when horizontal equity was high (mean of

4.12 vs. 5.22, F=21.70, p<0.001), but not when it was low (mean of 2.82 vs. 3.01,

F=0.37, p=0.54).36 These findings are therefore consistent with the idea that outcomes

can positively bias perceptions of horizontal equity, but this occurred primarily when

horizontal equity was high. Importantly, the horizontal equity manipulation nonetheless

had significant effects on perceptions of horizontal equity for both favourable (F=92.02,

p<0.001) and unfavourable outcomes (F=16.95, p<0.001). Thus, horizontal equity was

effectively manipulated for both favourable and unfavourable outcomes.

In addition to the expected main effect of the procedural fairness manipulation on

procedural fairness perceptions (F=84.00, p<0.001), there were also significant main

effects of horizontal equity (F=5.66, p=0.02) and outcome favourability (F=117.02,

p<0.001), as well as a significant outcome favourability x procedural fairness interaction

(F=15.49, p<0.001). This interaction is also graphed in Figure 1. The outcome

favourability main effect suggested that perceptions of procedural fairness were higher

for more favourable outcomes than less favourable (mean of 3.97 vs. 2.25). The

interaction showed outcome favourability significantly increased perceptions of

procedural fairness when procedural fairness was high (mean of 2.91vs. 5.07, F=112.86,

36 Subjects may have been more willing to exaggerate the fairness of an objectively fair situation, but
were not willing to admit that paying more tax than someone else was fair just because they received a
positive outcome on a disputed amount. This interpretation may reflect the fact that the amounts
involved with the outcome measure are small relative to the amounts involved with the horizontal equity
measure.

49
p<0.001) and when it was low (mean of 1.79 vs. 2.64, F=23.50, p<0.001). These findings

are therefore consistent with the idea that outcomes can positively bias perceptions of

procedural fairness. Unlike horizontal equity, the outcome favourability bias exists at

both levels of procedural fairness, although it is stronger when procedural fairness is

high. Importantly, the procedural fairness manipulation had significant effects on

perceptions of procedural fairness for both favourable (F=103.12, p<0.001) and

unfavourable outcomes (F=11.87, p<0.001).37 Thus, procedural fairness was effectively

manipulated for both favourable and unfavourable outcomes.38

4.6 H2: Results & Interpretation for Compliance Measure

To test H2,1 checked for a significant three-way interaction term when horizontal equity

was crossed with procedural fairness and outcome favourability using ANCOVA. Then I

conducted a test of planned contrasts, and did post hoc procedures to analyze how

means from the low/low/unfavourable cell differed from each of the other cell means.

There was a significant three-way interaction term when horizontal equity was crossed

with procedural fairness and outcome favourability using ANCOVA (F=5.90, p=0.02).

Thus, there was evidence of a significant three-way interaction between horizontal

equity, procedural fairness and outcome favourability. Table 8 shows the ANCOVA

371 also ran this ANCOVA with perceptions of outcome favourability as the dependent variable. There
were no significant two-way interaction effects, which is consistent with the above analysis in that
fairness perceptions were biased by outcome favourability, but not vice versa.
38 It is unlikely that a fairness bias could affect the compliance results since there are no significant three-
way interactions for fairness perceptions of both horizontal equity and procedural fairness.

50
results. Detection was the only statistically significant covariate (F=28.01, pcO.OOl), and

was included in the model.39 Although not specifically hypothesized, there were also

significant main effects of horizontal equity (F=3.85, p=0.05) and outcome favourability

(F=21.47, p<0.001), but not procedural fairness.

To further analyze H2,1 conducted a test of planned contrasts. If H2 is supported, the

mean in the low/low/unfavourable cell will be significantly different than the means of

the other cells. I assigned a contrast coefficient of -7 to the low/low/unfavourable cell,

and contrast coefficients of +1 to the other 7 cells so that the sum of the contrast

coefficients was 0. Then, I conducted a one-way ANOVA. Results support H2 (F=4.86,

pcO.OOl), and indicate that the mean in the low/low/unfavourable cell was significantly

different than the other cell means. Thus, I accept H2. This test provides support for

the main theoretical prediction that horizontal equity and procedural fairness will

interact when a third variable - outcome favourability - is also present.

Post hoc procedures reveal how means from the low/low/unfavourable cell differed

from each of the other cell means. Several criteria to use when assessing which post-

hoc test(s) to use are: 1) whether or not there are equal numbers of subjects in each

391 included two covariates known to affect fairness perceptions: social value orientation, and political
orientation. Social value orientation is known to differentially affect the evaluation of outcome
information in the formation of fairness judgments (Anderson & Patterson 2008), and political orientation
has some role in shaping fairness perceptions (Tetlock & Mitchell 1993). I also included the following
covariates: likelihood of detection, social norms, gender, age, trust in authority, whether or not subjects
had prior dealings with a tax authority, number of years filing a tax return, and income level (Verboon &
van Dijke 2010, Slemrod 2007, Wenzel 2004, Slemrod & Yitzhaki 2002, Aim 1999, Andreoni et al. 1998). I
measured social value orientation with an instrument from Van Lange et al. (1997).

51
cell; 2) whether the population variances are very different; and 3) whether or not the

data is normally distributed (Field 2009; Hilton & Armstrong 2006). Regarding 1), there

are not equal numbers of subjects across cells. Regarding 2), Levene's test was used to

check the homogeneity of variances between groups. The test results were non­

significant (F=1.549, p=0.155), indicating that there are no significant differences

between group variances. Regarding 3), skewness and kurtosis values for each cell were

examined (none exceeded ±2.0), as well as Q-Q plots. Kolmogorov-Smirnov and

Shapiro-Wilk tests were also performed. Results indicate that most cells appear to have

non-normal distributions. Consequently, the data appeared to be normally distributed.

Suitable post-hoc tests are Fisher's LSD test and Dunnett's test (Field 2009; Hilton &

Armstrong 2006). Neither test requires equal numbers of subjects per cell, but both

require population variances to be homogenous. Fisher's LSD test is suitable when the

data is normally distributed, whereas Dunnett's test is suitable when the data is not

normally distributed. I performed LSD tests and report only the results from this test,

but also did Dunnett's test as a sensitivity procedure.40 Fisher's LSD test requires a

significant F ratio for the overall interaction effect, which is the case.

Table 9 reports results of one-tailed tests for fairness conditions across both levels of

outcomes. Cell means for each condition are compared with the low/low/unfavourable

40 Results were similar when Dunnett's test was used.

52
cell. Those cells significantly different from the low/low/unfavourable cell are indicated

with an asterisk. Implications of these results are discussed later.

4.7 Summary & Discussion

I performed a 2 (horizontal equity: fair, unfair) x 2 (procedural fairness: fair, unfair) x 2

(outcome: favourable, unfavourable) between-subjects experiment on a sample of

Ontario taxpayers. There was a significant three-way interaction such that the

combination of low horizontal equity, low procedural fairness, and unfavourable

outcome produced the lowest tax compliance relative to all other conditions. There

were also significant main effects of both horizontal equity and outcome favourability

on tax compliance.

This experiment provides causal evidence that a combination of horizontal equity,

procedural fairness, and outcome favourability determines tax compliance intentions. I

also find evidence that taxpayers' outcome favourability biases their perceptions of both

horizontal equity and procedural fairness, but that this bias cannot explain the overall

three-way interaction.

53
CHAPTER 5 - Conclusion

The purpose of this chapter is to summarize the contributions of the research, discuss

implications of the research results, acknowledge limitations in the research, and

suggest directions for future research.

5.1 Contributions

Verboon & Goslinga (2009), when assessing the tax fairness-tax compliance association,

state:

Generally, a positive effect of perceived fairness in tax-related affairs is found,

meaning that perceived fairness will strengthen tax compliance. It is, however,
not yet fully understood under which conditions and for which forms of fairness
this positive effect occurs. Different conceptualisations of fairness seem to
generate different results and previous studies sometimes failed to clearly
specify which aspect of form of fairness was under scrutiny, (p.136)

Accordingly, in this dissertation, I developed a more comprehensive understanding of

the relationship between tax fairness and tax compliance in the Canadian tax context.

This dissertation addressed four research questions. First, what are extant dimensions

of tax fairness? Second, how should each dimension be measured? Third, what is the

impact of each dimension on tax compliance? Fourth, how does the combination of

these dimensions impact tax compliance?

The first research question was addressed by synthesizing the existing tax fairness

literature to develop a taxonomy consisting of four underlying dimensions of tax

fairness. These dimensions are horizontal equity, vertical equity, exchange equity, and

54
procedural fairness. This taxonomy is consistent with the distributive-procedural

conceptual frameworks of Wenzel (2003) and Kazemi (2009). Outcome favourability

was identified during this synthesis, and is a variable with strong empirical and

theoretical links to both fairness and compliance.

The second and third research questions were addressed through a structural equation

modelling analysis of survey data of Canadian taxpayers. A measurement model

confirmed the adequacy of the tax fairness measures. All measures had Cronbach

alphas in excess of 0.8. Developing reliable measures is important because there are

conflicting results of the tax fairness-tax compliance association in the literature, in part

because of measurement inconsistencies. The structural model assessed the relation

between each dimension and tax compliance. Of the four tax fairness dimensions, only

horizontal equity was significantly and positively associated with tax compliance.

The fourth research question was addressed experimentally. Horizontal equity was

crossed with procedural fairness and outcome favourability. Experiment results indicate

that Canadian taxpayers in a balance owing position who perceive low horizontal equity

and low procedural fairness are the least compliant relative to any other condition.

5.2 Implications

Although the empirical evidence from the literature review suggested a significant

positive association between each dimension and tax compliance, the findings from the

survey indicate that only horizontal equity had a significant positive association on

55
compliance. In accordance with Richardson's (2005b) suggestion, it may be that

perceptions of tax fairness differ cross-nationally because of differences in tax systems.

The survey was conducted on a sample of Canadian taxpayers and asked questions

about the Canadian tax system. Therefore, the results are specific to Canada.

Horizontal equity seems to be the tax fairness dimension that matters most to Canadian

taxpayers. The significance of horizontal equity suggests that Canadian taxpayers are

more concerned about their tax status relative to their tax equals, i.e. those who earn

the same amount of income, rather than their unequals, i.e. those who earn more or

less (vertical equity).

It is interesting that of the four dimensions, only horizontal equity seemed to matter to

Canadian taxpayers. This result may indicate that individuals find the Canadian tax

system unfair in terms of certain deductions and tax credits. If, for example, two

taxpayers had similar incomes, the most likely reason they would have different tax

liabilities is because of differences in deductions (e.g. child care expenses, spousal

support payments, RRSP's) and tax credits (e.g. for disabled dependents, donations,

age). There may also be a perception that some deductions or tax credits are not large

enough (e.g. basic personal amount) or are too large (e.g. children's fitness tax credit);

that some tax credits are too easy or too difficult to access (e.g. income restriction to

access medical expense tax credit); that some deductions or tax credits should not even

exist (e.g. political contribution tax credit); or that there should be deductions and tax

56
credits that do not currently exist but should exist (e.g. deductions for mortgage interest

or child support payments).

The results of this dissertation may also suggest that horizontal equity is a relatively

dormant perception that must be activated or primed since the comparison is difficult

to make. Also, fairness research indicates that individuals need fairness most when they

are uncertain about things that are important to them (Lind & Miedema 2000). Thus,

the finding that horizontal equity is important to taxpayers may suggest that horizontal

equity perceptions cause strong reactions because taxpayers are reminded that they

need fairness most for deductions and/or tax credits.

In the experiment, comparing the low/low/unfavourable cell to the other cells provides

several insights for tax policy makers. Compliance appears to improve significantly

when perceptions of horizontal equity move from low to high, provided procedural

fairness is low and outcomes are unfavourable. This finding suggests that horizontal

equity can improve compliance in some circumstances. And, compliance appears to

improve significantly when outcomes are favourable, regardless of fairness, which

suggests that compliance can be improved if more taxpayers are in refund positions.

Procedural fairness seems to have no impact in improving compliance relative to the

worst-case situation, which suggests that using procedural fairness to improve

compliance is probably not effective.

57
Given the significant differences in cell means for all favourable outcome conditions

relative to the low/low/unfavourable condition, governments could mandate increases

in employer tax withholdings, decrease the instalment threshold, increase the amount

of instalments required, and introduce a withholding tax on domestic interest and

dividends (Li 1995), all of which would increase the likelihood of taxpayers being in a

favourable outcome (i.e. refund) situation, thereby increasing the likelihood of

compliance.

The results of this research are not just limited to Canada. This research suggests the

importance of considering national values with respect to paying tax across all tax

jurisdictions.

Although not a test of fairness heuristic theory, the results of the ANCOVA using the

manipulation checks provide partial support for a fairness heuristic explanation. When

outcomes were unfavourable, individuals in the high procedural fairness condition

significantly increased their perceptions of fairness relative to the low procedural

fairness condition, consistent with a fairness heuristic explanation. However, when

outcomes were favourable, individuals in the high procedural fairness condition also

significantly increased their perception of fairness relative to the low procedural fairness

condition. A fairness heuristic explanation might have predicted no significant increase,

since procedural fairness concerns are not as salient when outcomes are favourable.

58
5.3 Limitations

There are several limitations. First, the results from this research are applicable for the

Canadian context rather than other national contexts. Also, since subjects were chosen

from a database of individuals participating in consumer research, it may be difficult to

generalize the results to all Canadian taxpayers. For example, there may be differences

in perceptions of fairness that vary across provinces if taxpayer inadvertently

confounded the federal tax system with the provincial and/or municipal tax systems,

despite being told that the studies in question pertained to the federal tax system in

Canada. Demographically, there were not as many respondents over age 60 or high

income respondents (incomes exceeding $100,000) relative to other age and income

groups, which may have biased the results.

Since I measured tax compliance intentions rather than actual tax compliance reporting

behavior, any attempt to translate the results of this research into policy objectives

about actual behavior should be done with caution. Additionally, although it would

have been more realistic to ask questions pertaining to actual reporting behavior, had I

done so, the responses may have been biased due to subjects' cognitive limitations

arising from their concern that the CRA could find out if they truthfully provided deviant

answers.41

41Respondents were told in both the survey and experiment that the CRA was not in any way involved
with the study and would not have access to the results.

59
5.4 Future Research

There are many opportunities for tax researchers to study how tax fairness influences

tax compliance. Three possible future research agendas emerging from this research

are:

1) A consideration of how and why perceptions of fairness differ cross-nationally (e.g.

Canada-United States) and further exploration into the importance of horizontal equity

in Canada (e.g. the basis of comparison for horizontal equity assessments).

2) A consideration of how outcome favourability impacts tax compliance when

accompanied by other tax variables.

3) A consideration of the multidimensionality of the procedural fairness dimension in

the tax context.

60
REFERENCES

Adams, J. S. (1965). Inequity in social exchange. In L. Berkowitz (ed.), Advances in

Experimental Social Psychology. Vol. 2. New York: Academic Press.

Aim, J. & Torgler, B. (2006). Culture differences and tax morale in the United States and
Europe. Journal of Economic Psychology, 27(2), 224.

Aim, J. (1999). Tax Compliance and Administration. In W. B. Hildreth & J. A. Richardson

(Eds.), Handbook on Taxation. New York: Mercel Drekker, pp.741-68.

Aim, J., Jackson, B. R., & McKee, M. (1992). Estimating the determinants of taxpayer
compliance with experimental data. National Tax Journal, 45(1), 107.

Aim, J. (1991). A perspective on the experimental analysis of taxpayer reporting. The

Accounting Review, 66(3), 577.

Anderson, W. & Patterson, M. (2008). Effects of social value orientation on fairness

judgments. The Journal of Social Psychology, 148{2), 223.

Andreoni, J., Erard, B. & Feinstein, J. (1998). Tax compliance. Journal of Economic
Literature, Vol. 36(2), 818.

Azmi, A. & Perumal, K. (2008). Tax Fairness Dimensions in an Asian context: The
Malaysian perspective. International Review of Business Research Papers, 4(5), 11.

Babcock, L., Loewenstein, G., Issacharoff, S. & Camerer, C. (1995). Biased judgments of
fairness in bargaining. American Economic Review, 85(5), 1337.

Bergman, M. S. (2001). On trust, deterrence and compliance: The sociology of tax

evasion in Argentina. (Ph.D., University of California, San Diego).

Bies, R. (2005). "Are Procedural Justice and Interactional Justice conceptually distinct?"
in Greenberg, J. & Colquitt, J. (Eds), Handbook of Organizational Justice: fundamental
questions about fairness in the workplace. Mahwah, NJ: Erlbaum, pp. 85-112.

Bies, R. & Moag, J. (1986). "Interactional justice: communication criteria of fairness" in

R. Lewicki, B. Sheppard & M. Bazerman (Eds), Research on negotiations in organizations.
Vol. 1. Greenwich, CT: JAI Press, pp.43-55.

61
Blanthorne, C., & Kaplan, S. (2008). An egocentric model of the relations among the
opportunity to underreport, social norms, ethical beliefs, and underreporting behavior.
Accounting, Organizations and Society, 33(7/8), 684.

Bobek, D.D., Hatfield, R.C. & Wentzel, K. (2007). An investigation of why taxpayers
prefer refunds: a theory of planned behavior approach. Journal of the American
Taxation Association, 29(1), 123.

Bobek, D. D., & Hatfield, R. C. (2003). An investigation of the theory of planned behavior
and the role of moral obligation in tax compliance. Behavioral Research in Accounting,
15,13.

Bobek, D. (1997), "Tax fairness: How do individuals judge fairness and what effect does
it have on their behavior?" Ph.D. thesis, University of Florida.

Bolton, G. & Ockenfelds, A. (2000). ERC: A theory of equity, reciprocity and competition.
American Economic Review, 90(1), 166.

Bolton, G., Brandts, J. & Ockenfelds, A. (2005). Fair procedures: Evidence from games
involving lotteries. Economic Journal, 115(506), 1054.

Bordignon, M. (1993). A fairness approach to income tax evasion. Journal of Public

Economics, 52(3), 345.

Borkowski, S. (1996). Advance pricing (dis)agreements: Difference in tax authority and

transnational corporation opinions. The International Tax Journal, 22(3), 23.

Bozyk, P. (2006). Globalization and the Transformation of Foreign Economic Policy.

Burlington, VT: Ashgate Publishing.

Brockner, J. & Wiesenfeld, B. (2005). "How, when, and why does outcome favourability
interact with procedural fairness?" in Greenberg, J. & Colquitt, J. (Eds), Handbook of
Organizational Justice: fundamental questions about fairness in the workplace.
Mahwah, NJ: Erlbaum, pp. 525-554.

Brockner, J. (2002). Making sense of procedural fairness: how procedural fairness can
reduce or heighten the influence of outcome favourability. Academy of Management
Review, 27(1), 58.

Brockner, J. & Wiesenfeld, B. (1996). An Integrative Framework for Explaining Reactions

to Decisions: Interactive Effects of Outcomes and Procedures. Psychological Bulletin,
220(2), 189.

62
Burnett, M., Williamson, I. & K. Bartol (2009). The moderating effect of personality on
employees' reactions to procedural fairness and outcome favourability. Journal of
Business Psychology, 24(4), 469.

Byrne, B. M. (2009). Structural Equation Modeling with AMOS: Basic Concepts.

Applications, and Programming. 2nd ed. New York: Taylor & Francis.

Christensen, A., Hite, P. & Roberts, M. L. (2000), An Experimental Study of the Effects of
Marital Status and Family Size on Tax Fairness Judgments, Advances in Taxation, 12, 51.

Christensen, A. & Weihrich, S. (1996). Tax fairness: different roles, different

perspectives. Advances in Taxation, 8, 27.

Christensen, A., Weihrich, S. & Gerbing, M. D. (1994), "The Impact of Education on

Perceptions of Tax Fairness", Advances in Taxation, 6, 63.

Chung, J. & Trivedi, V. (2003). The effect of friendly persuasion and gender on tax
compliance behavior. Journal of Business Ethics, 47(2), 133.

Collins, J. H., Milliron, V. C., & Toy, D. R. (1992). Determinants of tax compliance: A
contingency approach. The Journal of the American Taxation Association, 14(2), 1.

Colquitt, J. & Chertkoff, J. (2002). Explaining injustice: The interactive effect of

explanation and outcome on fairness perceptions and task motivation. Journal of
Management, 28(5), 591.

Colquitt, J. (2001). On the dimensionality of organizational justice: a construct

validation of a measure. Journal of Applied Psychology, 86(3), 386.

Copeland, P. V., & Cuccia, A. D. (2002). Multiple determinants of framing referents in tax
reporting and compliance. Organizational Behavior and Human Decision Processes,
88(1), 499.

Couper, M. (2008). Designing Effective Web Surveys. Cambridge: Cambridge University

Press.

CRA 2010: Canada Revenue Agency Annual Report to Parliament, 2009-2010, online
http://www.cra-arc.gc.ca/gncy/nnnl/2009-2010/prfrmnc-e/rc4425-09-eng.pdf.

63
Cropanzano, R. & Folger, R. (1991). Procedural justice and worker motivation. In R. M.
Steers & L. W. Porter (Eds.), Motivation and Work Behavior (2nd ed). New York, NY:
McGraw-Hill,, pp.131-143.

Cuccia, A. D. (1994). The economics of tax compliance: What do we know and where do
we go? Journal of Accounting Literature, 13, 81.

Cummings, R., Martinez-Vazquez, J., McKee, M. & B. Torgler (2009). Tax morale affects
tax compliance: Evidence from surveys and an artefactual field experiment. Journal of
Economic Behavior & Organization, 70(3), 447.

De Cremer, D. & Tyler, T. (2007). The effects of trust in authority and procedural
fairness on cooperation. Journal of Applied Psychology, 92(3), 639.

Dean, P. N., Keenan, A. & Kenney, G. (1980). Taxpayers' attitudes to income tax evasion:
an empirical study. British Tax Review, 22(1), 28.

Ding, L., Velicer, W. & Harlow, L. (1995). Number of indicators per factor, and improper
solutions on structural equation modeling fit indices. Structural Equation Modeling,
2(2), 119.

Eriksen, K. & Fallan, L. (1996). Tax knowledge and attitudes towards taxation: a report
on a quasi-experiment. Journal of Economic Psychology, 17(3), 387.

Etzioni, A. (1986). Tax evasion and perceptions of tax fairness: A research note. The
Journal of Applied Behavioral Science, 22(2), 177.

Feld, L. P., & Frey, B. S. (2007). Tax compliance as the result of a psychological tax
contract: The role of incentives and responsive regulation. Law & Policy, 29(1), 102.

Field, A. (2009). Discovering Statistics Using SPSS. 3rd ed. Thousand Oaks: Sage.

Fischer, C. M,, Wartick, M., & Mark, M. M. (1992). Detection probability and taxpayer
compliance: A review of the literature. Journal of Accounting Literature, 11,1.

Folger, R. & Cropanzano, R. (2001). Fairness theory: justice as accountability. In

Greenberg, J. & Cropanzano, R. (Eds), Advances in Organizational Justice. Stanford:
Stanford University Press.

Folger, R. & Cropanzano, R. (1998). Organizational justice and human resource

management. Thousand Oakes: Sage.

64
Folger, R. (1986). Rethinking equity theory: A reference cognitions model. In Bierhoff,
H.W., Cohen, R.L., & Greenberg J. (Eds), Justice in social relations. New York: Plenum
Press.

Fondacaro, M., S. Jackson & Luescher, J. (2002). Toward the assessment of procedural
and distributive justice in resolving family disputes. Social Justice Research, 15(4), 341.

Garver, M. S. & Mentzer, J. T. (1999). Logistics research methods: Employing structural

equation modeling to test for construct validity. Journal of Business Logistics, 20(1), 33.

Gerbing, M. D. (1988). An empirical study of taxpayer perceptions of fairness. Ph.D.

thesis, The University of Texas at Austin.

Gilligan, G., & Richardson, G. (2005). Perceptions of tax fairness and tax compliance in
Australia and Hong Kong - A preliminary study. Journal of Financial Crime, 12(A), 331.

Groenland, E. & van Veldhoven, G. (1983). Tax Evasion Behavior: A Psychological

Framework. Journal of Economic Psychology, 3(2), 129.

Hartner, M., Rechberger, S., Kirchler, E. & M. Wenzel (2011). Perceived Distributive
Fairness of EU Transfer Payments, Outcome favourability, Identity, and EU-Tax
Compliance. Law & Policy, 33(1), 60.

Hartner, M., Rechberger, S., Kirchler, E., & Schabmann, A. (2008). Procedural fairness
and tax compliance. Economic Analysis & Policy, 38(1), 137.

Hasseldine, J., Kaplan, S. & Fuller, L. (1994). Characteristics of New Zealand tax evaders:
a note. Accounting & Finance, 34(2), 79.

Haufler, A. & Wooton, I. (1999). Country size and tax competition for foreign direct
investment. Journal of Public Economics, 71(1), 121.

Hauenstein, N., McGonigle, T. & Flinder, S. (2001). A meta-analysis of the relationship

between procedural justice and distributive justice: implications for justice research.
Employee Responsibilities and Rights Journal, 13(1), 39.

Henseler, J. & Chin, W. (2010). A comparison of approaches for the analysis of

interaction effects between latent variables using partial least squares path modeling.
Structural Equation Modeling, 17(1), 82.

Hilton, A. & Armstrong, R. (2006). Stat Note 6: post hoc ANOVA tests. Online:
<http://eprints.aston.ac.Uk/9317/l/Statnote_6.pdf>, accessed 06/11/2011.

65
Hite, P. A. & Roberts, M. L. (1992). An Analysis of Tax Reform Based on Taxpayers'
Perceptions of Fairness and Self-interest. Advances in Taxation, 4,115.

Hooper, D., Coughlan, J. & Mullen, M. (2008). Structural Equation Modelling: Guidelines
for Determining Model Fit. The Electronic Journal of Business Research Methods, 6(1),
53.

Houghton, J. D., & Jinkerson, D. L. (2007). Constructive thought strategies and job
satisfaction: A preliminary examination. Journal of Business and Psychology, 22(1), 45.

Jackson, B. R., & Milliron, V. C. (1986). Tax compliance research: Findings, problems, and
prospects. Journal of Accounting Literature, 5, p. 125.

Jonsson, S. & Macintosh, N. (1997). CATS, RATS, and EARS: Making the case for
ethnographic accounting research. Accounting, Organizations & Society, Vol.22(3/4),
367.

Kaplan, S. & Reckers, P. (1985). A Study of Tax Evasion Judgments. National Tax
Journal, 38(1), 97.

Kazemi, A. (2009). "There is more to fairness in taxation than fair taxes: Introducing a
multi-faceted framework of taxation" in Dynamics Within and Outside the Lab, Jern, S. &
Naslund, J. (eds.), Proceedings from the 6th Nordic Conference on Group and Social
Psychology.

Keenan, A. & Dean, P. N. (1980). Moral Evaluations of Tax Evasion. Social Policy and
Administration, 14(3), 209.

Kerlinger, F. N. & Lee, H. B. (2000). Foundations of behavioral research (4th ed.). Forth
Worth: Holt, Rinehart & Winston.

Kim, C. K., Evans, J. H.,lll, & Moser, D. V. (2005). Economic and equity effects on tax
reporting decisions. Accounting, Organizations and Society, 30(7,8), 609.

Kim, C. K. (2002). Does fairness matter in tax reporting behavior? Journal of Economic
Psychology, 23(6), 771.

King, S., & Sheffrin, S. M. (2002). Tax evasion and equity theory: An investigative
approach. International Tax and Public Finance, 9(4), 505.

Kirchler, E., Hoelzl, E., & Wahl, I. (2008). Enforced versus voluntary tax compliance: The
"slippery slope" framework. Journal of Economic Psychology, 29(2), 210.

66
Kirchler, E. (2007). The economic psychology of tax behavior. Cambridge: University
Press.

Kirchler, E., Niemirowski, A. & A. Wearing. (2006). Shared subjective views, intent to
cooperate and tax compliance: Similarities between Australian taxpayers and tax
officers. Journal of Economic Psychology, 27(4), 502.

Kulik, C. & Ambrose, M. (1992). Personal and Situational Determinants of Referent

Choice. Academy of Management Review, 17(2), 212.

Leventhal, G.S. (1980). "What should be done with equity theory? New approaches to
the study of fairness in social relationships" in Social Exchange: Advances in Theory and
Research. Gergen, Greenberg & Hills (eds.). New York: Plenum Press.

Lewis, A., Carrera, S., Cullis, J. & Jones, P. (2009). Individual, cognitive and cultural
differences in tax compliance: UK and Italy compared. Journal of Economic Psychology,
30(3), 431.

Li, J. (1995). Withholding tax on domestic interest and dividends. Canadian Tax Journal,
43(3), 553.

Libby, T. (2001). Referent Cognitions and Budgetary Fairness: A Research Note. Journal
of Management Accounting Research, 13, 91.

Lind, E. (2001). "Fairness heuristic theory: Justice judgments as pivotal cognitions in

organizational relations" in Advances in Organizational Justice. Greenberg & Cropanzano
(eds.). Stanford: Stanford University Press.

Lind, E. & Miedema, J. (2000). Toward understanding why fairness matters: The
influence of mortality salience on reactions to procedural fairness. Journal of
Personality and Social Psychology, 79(3), 355.

Little, T., Bovaird, J. & Widaman, K. (2006). On the merits of orthogonalizing powered
and product terms: implications for modeling interactions among latent variables.
Structural Equation Modeling, 13(4), 497.

Maroney, J. J., Rupert, T. J., & Wartick, M. L. (2002). The perceived fairness of taxing
social security benefits: The effect of explanations based on different dimensions of tax
equity. The Journal of the American Taxation Association, 24(2), 79.

67
Maroney, J. J., Rupert, T. J., & Anderson, B. H. (1998). Taxpayer reaction to perceived
inequity: An investigation of indirect effects and the equity-control model. The Journal
of the American Taxation Association, 20(1), 60.

Mason, R. & Calvin, L.D. (1984). Public confidence and admitted tax evasion. National
Tax Journal, 37(4), 489.

Mason, R. & Calvin, L. D. (1978). A Study of Admitted Tax Evasion. Law & Society
Review, 13(1), 73.

Maxwell, S. & Delaney, H. (2004). Designing Experiments and Analyzing Data: A Model
Comparison Perspective, 2nd ed. Mahwah, NJ: Lawrence Erlbaum Associates.

McCaffery, E. & Baron, J. (2004). Framing and taxation: Evaluation of tax policies
involving household composition. Journal of Economic Psychology, 25(6), 679.

McGee, R., Nickerson, I., Pleshko, L. & Broihahn, M. (2010). "The ethics of tax evasion:
an investigation into demographic differences", proceedings from the 14th Allied
Academies International Conference.

Moser, D. V., Evans, J. H.,lll, & Kim, C. K. (1995). The effects of horizontal and exchange
inequity on tax reporting decisions. The Accounting Review, 70(4), 619.

Murphy, K. (2008). Procedural justice and affect intensity: Understanding reactions to

regulatory authorities. Social Justice Research, 22(1), 1.

Murphy, K. & Tyler, T. (2008). Procedural justice and compliance behavior: the
mediating role of emotions. European Journal of Social Psychology, 38(4), 652.

Murphy, K. (2005). Regulating more effectively: The relationship between procedural

justice, legitimacy and tax non-compliance. Journal of Law and Society, 32(4), 562.

Murphy, K. (2004a). The role of trust in nurturing compliance: A study of accused tax
avoiders. Law and Human Behavior, 28(2), 187.

Murphy, K. (2004b). Procedural justice and tax compliance. Centre for Tax System
Integrity, Research School of Social Sciences, Australian National University, Canberra:
Working Paper No. 56.

68
Niemirowski, P., Baldwin, S. & Wearing, A. J. (2003). Tax Related Behaviors, Beliefs,
Attitudes and Values and Taxpayer Compliance in Australia. Journal of Australian
Taxation, 6(1), 132.

Nunnally, J. C. (1978). Psychometric Theory. New York: McGraw-Hill.

Palil, M. R. (2010). Tax knowledge and tax compliance determinants in self assessment
systems in Malaysia. PhD thesis, University of Birmingham.

Porcano, T. M. (1988). Correlates of tax evasion. Journal of Economic Psychology, 9(1),

47.

PWC 2011. Worldwide Tax Summaries. Online: <http://taxsummaries.pwc.com>,

accessed 09/07/2011.

Reithel, S., Baltes, B., & Buddhavarapu, S. (2007). Cultural differences in distributive and
procedural justice: Does a two-factor model fit for Hong Kong employees? International
Journal of Cross Cultural Management, 7(1), 61.

Reuben, E. & van Winden, F. (2010). Fairness perceptions and prosocial emotions in the
power to take. Journal of Economic Psychology, 31(6), 908.

Riahi-Belkaoui, A. (2004). Relationship between tax compliance internationally and

selected determinants of tax morale. Journal of International Accounting, Auditing and
Taxation, 13(2), 135.

Richardson, G. (2005a). A preliminary study of the impact of tax fairness perception

dimensions on tax compliance behavior in Australia. Australian Tax Forum, 20(3), 407.

Richardson, G. (2005b). An exploratory cross-cultural study of tax fairness perceptions

and tax compliance behavior in Australia and Hong Kong. The International Tax Journal,
31(1), 11.

Richardson, G. (2006a). Determinants of tax evasion: a cross-country investigation.

Journal of International Accounting, Auditing and Taxation, 15(2), 150.

Richardson, G. (2006b). The impact of tax fairness dimensions on tax compliance

behavior in an Asian jurisdiction: the case of Hong Kong. International Tax Journal,
32(1), 29.

69
Richardson, G. (2008). The relationship between culture and tax evasion across
countries: Additional evidence and extensions. Journal of International Accounting,
Auditing and Taxation, 17(1), 67.

Roberts, M. (1994). An experimental approach to changing taxpayers' attitudes towards

fairness and compliance via television. The Journal of the American Taxation
Association, 16(1), 67.

Roberts, M. & Hite, P. (1994). Progressive Taxation, Fairness, and Compliance. Law &
Policy, 16(1), 27.

Saad, N. (2011). Fairness perceptions and compliance behavior: taxpayers' judgments in

self-assessment environments. PhD thesis, University of Canterbury.

Saad, N. (2009). Fairness Perceptions and Compliance Behavior: The Case of Salaried
Taxpayers in Malaysia after Implementation of the Self-Assessment System. eJournal of
Tax Research, 8(1), 32.

Schweitzer, M. E. & Gibson, D. E. (2008). Fairness, Feelings, and Ethical Decision-

Making: Consequences of Violating Community Standards of Fairness. Journal of
Business Ethics, 77(3), 287.

Scott, W. J. & Grasmick, H. G. (1981). Deterrence and Income Tax Cheating: Testing
Interaction Hypotheses in Utilitarian Theories. The Journal of Applied Behavioral
Science, 17(3), 395.

Skitka, L., Winquist, J. & Hutchinson, S. (2003). Are outcome fairness and outcome
favourability distinguishable psychological constructs? A Meta-Analytic review. Social
Justice Research, 26(4), 309.

Slemrod, J. (2007). Cheating ourselves: The economics of tax evasion. The Journal of
Economic Perspectives, 21(1), 25.

Slemrod, J. & Yitzhaki, S. (2002). "Tax Avoidance, Evasion, and Administration" in

Handbook of Public Economics, ed. A. J. Auerbach & M. S. Feldstein, vol. 3. Amsterdam:
Elsevier B.V., pp.1423-70.

Spicer, M. W. & Becker, L. A. (1980). Fiscal Inequity and Tax Evasion: An Experimental
Approach. National Tax Journal, 33(2), 171.

Spicer, M. W. & Lundstedt, S. B. (1976). Understanding Tax Evasion. Public Finance, 31,
295.

70
Spicer, M. W. (1974), "A Behavioral Model of Income Tax Evasion", Ph.D. thesis, Ohio
State University.

Stevens, J. (2002). Applied multivariate statistics for the social sciences. 4th ed.
Hillsdale, NJ: Erlbaum.

Tan, L. & Chin-Fatt, C. (2000). The impact of tax knowledge on the perceptions of tax
fairness and attitudes towards compliance. Asian Review of Accounting, 8(1), 44.

Tetlock, P. & Mitchell, P. (1993). "Liberal and conservative approaches to justice:

Conflicting psychopolitical portraits" in Mellers, B. & Baron, J. (eds), Psychological
Perspectives on Justice. Cambridge: Cambridge University Press, pp.234-255.

Thibault, J. & Walker, L. (1975). Procedural Justice: A Psychological Analysis. Hillsdale,

NJ: Lawrence Erlbaum Associates.

Torgler, B. & Schneider, F. (2007). What shapes attitudes toward paying taxes?
Evidence from multicultural European countries. Social Science Quarterly, 88(2), 443.

Trivedi, V. U., Shehata, M., & Lynn, B. (2003). Impact of personal and situational factors
on taxpayer compliance: An experimental analysis. Journal of Business Ethics, 47(3),
175.

Tsakumis, G., Curatola, A. & Porcano, T. (2007). The relation between national cultural
dimensions and tax evasion. Journal of International Accounting, Auditing and Taxation,
16(2), 131.

Van den Bos, K., Peters, S. L., Bobocel, D. R., & Ybema, J. F. (2006). On preferences and
doing the right thing: Satisfaction with advantageous inequity when cognitive processing
is limited. Journal of Experimental Social Psychology, 42(3), 273-289.

Van Dijke, M. & Verboon, P. (2010). Trust in tax authorities as a boundary condition to
procedural fairness effects on tax compliance. Journal of Economic Psychology, 31, 80.

Van Lange, P., De Bruin E., Otten, W. & Joireman, J. (1997). Development of Prosocial,
Individualistic and Competitive Orientations: Theory and Preliminary Evidence. Journal
of Personality and Social Psychology, 73(4), 733.

Van Montfort, K., Mooijaart, A. & Meijerink, F. (2009). Estimating structural equation
models with non-normal variables by using transformations. Statistica Neerlandica,
63(2), 213.

71
Verboon, P. & van Dijke, M. (2011). When do severe sanctions enhance compliance?
The role of procedural fairness. Journal of Economic Psychology, 32(1), 120.

Verboon, P. & Goslinga, S. (2009). The role of fairness in tax compliance. Netherlands
Journal of Psychology, 65(1), 136.

Verboon, P., & van Dijke, M. (2007). A self-interest analysis of justice and tax
compliance: How distributive justice moderates the effect of outcome favourability.
Journal of Economic Psychology, 28(6), 704.

Vermunt, R. & Tornblom, K. (1996). Introduction: Distributive and Procedural Justice.

Social Justice Research, 9(4), 305.

Viswesvaran, C. & Ones, D. (2002). Examining the construct of organizational justice: a

meta-analytic evaluation of relations with work attitudes and behaviors. Journal of
Business Ethics, 38(3), 193.

Vogel, J. (1974), "Taxation and Public Opinion in Sweden: An Interpretation of Recent

Survey Data", National Tax Journal, 27(4), 499.

Wallschutzky, I.G. (1984). Possible causes of tax evasion. Journal of Economic

Psychology, 5(4), 371.

Warneryd, K. E. & Walerud, B. (1982). Taxes and Economic Behavior: Some Interview
Data on Tax Evasion in Sweden. Journal of Economic Psychology, 2(3), 187.

Wenzel, M. (2002a). The impact of outcome orientation and justice concerns on tax
compliance: The role of taxpayers' identity. Journal of Applied Psychology, 87(4), 629.

Wenzel, M. (2002b). Principles of procedural fairness in reminder letter: a field

experiment. Centre for Tax System Integrity, Research School of Social Sciences,
Australian National University, Canberra: Working Paper No. 42.

Wenzel, M. (2003). "Tax compliance and the psychology of justice: Mapping the field"
in Taxing democracy: Understanding tax avoidance and evasion. V. Braithwaite (ed.),
Aldershot: Ashgate.

Wenzel, M. (2004). An analysis of norm processes in tax compliance. Journal of

Economic Psychology, 25(2), 213.

72
West, S., Finch, J. & Curran, P. (1995). "Structural equation models with nonnormal
variables" in Structural Equation Modeling: Concepts, Issues, and Applications. R. H.
Hoyle (ed.), Thousand Oaks, CA: Sage Publications.

Worsham, R. (1996). The effect of tax authority behavior on taxpayer compliance: a

procedural justice approach. The Journal of the American Taxation Association, 18(2),
19.

Yang, C., Nay, S. & Hoyle, R. (2010). Three approaches to using lengthy ordinal scales in
structural equation models: parceling, latent scoring, and shortening scales. Applied
Psychological Measurement, 34(2), 122.

Yong, S. & Rametse, N. (2010). The influence of procedural fairness on the small
business entrepreneurs and their perception of the tax authority: A case study
approach. International Review of Business Research Papers, 6(1), 487.

73
Table 1- Sources of Existing Measurements of Tax Fairness Dimensions

Measure Sources of existing

measures
Horizontal • Saad 2009; Moser et al.
equity 1995; Trivedi et al. 2003;
McCaffery & Baron
2004; Kim et al. 2005

Vertical • Hite & Roberts 1992;

Equity Christensen et al. 2000;
McCaffery & Baron
2004; Saad 2009

Exchange • Moser et al. 1995; Kim

Equity 2002; Kim et al. 2005;
King & Sheffrin 2002;
Aim et al. 1992; Saad
2009

Procedural • van Dijke & Verboon

Fairness 2010; Saad 2009

74
Tabie 2 - Descriptive Statistics of Survey Responses

Descriptive Statistics

Std.
N Minimum Maximum Mean Deviation Skewness Kurtosis

Statistic Statistic Statistic Statistic Statistic Statistic Statistic

HE1 593 1 7 5.18 1.459 -1.069 .646
HE2 593 1 7 5.37 1.336 -1.223 1.440
HE3 593 1 7 5.26 1.426 -.957 .384
HE4 593 1 7 5.26 1.451 -.918 .179
VE1 593 1 7 5.23 1.530 -.966 .471
VE2 593 1 7 5.31 1.485 -.996 .571
VE3 593 1 7 5.40 1.626 -1.027 .235
EE1 593 1 7 3.72 1.676 -.014 -1.027
EE2 593 1 7 3.67 1.704 .030 -1.023
EE6 593 1 7 3.15 1.470 .306 -.566
PF3 593 1 7 4.07 1.496 -.218 -.489
PF4 593 1 7 4.09 1.557 -.322 -.654
PF6 593 1 7 3.47 1.499 .067 -.523
PF8 593 1 7 4.45 1.432 -.515 -.014
CM 593 1 7 4.94 1.313 -.500 .197
CI2 593 1 7 5.06 1.336 -.630 .356
CI3 593 1 7 4.62 1.238 -.150 -.060
CI4 593 1 7 4.83 1.258 -.277 -.028
CI5 593 1 7 4.61 1.323 -.178 -.110

75
Table 3 - Frequencies for Demographic Variables

gender

Cumulative
Frequency Percent Percent
male 277 46.7 46.7

female 316 53.3 100.0

Total 593 100.0

age

Cumulative
Frequency Percent Percent
n/a 1 .2 .2

under 21 29 4.9 5.1

21-30 116 19.6 24.6

31-40 87 14.7 39.3

41-50 102 17.2 56.5

51-60 155 26.1 82.6

61-70 82 13.8 96.5

over 70 21 3.5 100.0

Total 593 100.0

Do you usually prepare your own tax return?

Cumulative
Frequency Percent Percent
n/a 10 1.7 1.7

yes 256 43.2 44.9

no 327 55.1 100.0

Total 593 100.0

Have you ever been audited by the CRA?

Cumulative
Frequency Percent Percent
n/a 12 2.0 2.0

yes 126 21.2 23.3

no 455 76.7 100.0

Total 593 100.0

76
 Have you ever had dealings with the CRA?

Cumulative
Frequency Percent Percent
n/a 8 1.3 1.3

yes 276 46.5 47.9

no 309 52.1 100.0

Total 593 100.0

Income

Cumulative
Frequency Percent Percent
n/a 8 1.3 1.3

< $25K 238 40.1 41.5

btw $25,001 198 33.4 74.9

and $49,999
btw $50,000 89 15.0 89.9
and $74,999
btw $75,000 41 6.9 96.8
and $100K
> $100K 19 3.2 100.0
Total 593 100.0

Where in Canada do you reside?

Cumulative
Frequency Percent Percent
n/a 1 .2 .2

British 73 12.3 12.5

Columbia
Alberta 69 11.6 24.1
Saskatchewan 15 2.5 26.6

Manitoba 63 10.6 37.3

Ontario 243 41.0 78.2
Quebec 21 3.5 81.8
New 23 3.9 85.7
Brunswick
Nova Scotia 68 11.5 97.1
Newfoundland 17 2.9 100.0
Total 593 100.0

77
 edition

Cumulative
Frequency Percent Percent
1 298 50.3 50.3

2 295 49.7 100.0

Total 593 100.0

78
Table 4- Cronbach Alphas for Final Measures

Construct/Dimension Indicators retained Cronbach alpha

Horizontal Equity Ql, Q2, Q3, Q4 0.808
Vertical Equity Q6, Q7, Q8 0.869
Exchange Equity Q10, Qll, Q15 0.806
Procedural Fairness Q18, Q19, Q21, Q23 0.834
Compliance Q25, Q26, Q27, Q28, Q29 0.897

79
 Table 5 - Principal Component Analysis

Rotated Factor Loadings

HE VE EE PF CI
It is fair for me to pay a similar share of income tax 0.755
compared with other taxpayers earning an equivalent
amount of income (HE1).
It is fair for individuals with similar amounts of income to 0.818
pay a similar amount of income tax (HE2).
Two taxpayers who earn the same income should pay the 0.795
same amount of income tax (HE3).
Two identical taxpayers should pay the same amount in 0.739
income tax (HE4).
It is fair that high-income earners are subject to tax at 0.912
progressively higher rates than middle-income earners
(VE1).
It is fair that middle-income earners are taxed at a lower 0.886
rate than high-income earners (VE2).
High-income earners should pay a greater share of 0.843
income tax than low-income earners (VE3).
1 get fair value in government services in exchange for the 0.793
income tax 1 pay (EE1).
The income tax 1 pay is returned to me in social services 0.828
received (EE2).
The amount 1 pay in income tax represents the amount 1 0.746
receive in government services (EE6).
The CRA's procedures lead to consistent outcomes (PF3). 0.810
The CRA does not take my interests into account (PF4). 0.751
The CRA takes the circumstances of individual taxpayers 0.757
into account when making decisions (PF6).
The CRA makes sure to have the necessary information 0.797
available to make decisions (PF8).
Taxpayers are likely to understate income that cannot be 0.821
checked by the CRA (e.g. cash tips) (Cll).
Taxpayers are tempted to understate income that cannot 0.821
be checked by the CRA (e.g. cash tips) (CI2).
Taxpayers are likely to overstate deductions on their tax 0.860
return (e.g. vehicle expenses) (CI3).
Taxpayers are tempted to overstate deductions on their 0.867
tax return (e.g. vehicle expenses) (CI4).
Taxpayers pretend ignorance and do not declare all cash 0.816
income to the CRA (CI5).
Eigenvalues 4.579 3.739 2.192 1.794 1.108
% of variance (total = 70.60%) 18.78 14.31 13.55 12.63 11.33

80
Table 6 - Regression Results from Survey

path coefficient significance

*
HE-CI 0.276 0.001
VE-CI 0.060 0.205
EE-CI -0.116 0.183
PF-CI -0.074 0.365

* - significant at the 0.05 level

Table 7 - Correlation matrix of independent and dependent variables

Correlations

HE level PF level OF level avgCI

HEJevel Pearson Correlation 1 -.045 .066 .134

Sig. (2-tailed) .576 .411 .093

N 159 159 159 159

PFJevel Pearson Correlation -.045 1 -.047 -.006

Sig. (2-tailed) .576 .557 .936

N 159 159 159 159

OFJevel Pearson Correlation .066 -.047 1 .347"

Sig. (2-tailed) .411 .557 .000

N 159 159 159 159

avgCI Pearson Correlation .134 -.006 .347" 1

Sig. (2-tailed) .093 .936 .000

N 159 159 159 159

**. Correlation is significant at the 0.01 level (2-tailed).

82
Table 8 - Overall ANCOVA results

Tests of Between-Subjects Effects

Dependent Variable: compliance intentions

Type III
Sum of
Source Squares df Mean Square F Sig.
Corrected Model 88.453a 8 11.057 8.509 .000
Intercept 99.139 1 99.139 76.298 .000
detection 36.400 1 36.400 28.013 .000
HEjevel 4.998 1 4.998 3.847 .052
PFJevel .835 1 .835 .643 .424
OFJevel 27.892 1 27.892 21.466 .000
HEjevel * PFJevel .704 1 .704 .542 .463
HEjevel * OFJevel 1.138 1 1.138 .876 .351
PFJevel * OFJevel .006 1 .006 .005 .946
HEjevel * PFJevel * OFJevel 7.661 1 7.661 5.896 .016
Error 194.905 150 1.299
Total 3323.438 159
Corrected Total 283.358 158
a. R Squared = .312 (Adjusted R Squared = .275)

83
Table 9 - Cell means for experimental conditions

Dependent variable: compliance

A cell with an asterisk (*) indicates a mean significantly different than the low horizontal
equity/low procedural fairness/unfavourable outcome condition (p<0.05; one-tailed Fisher's LSD
post-hoc test).

UNFAVOURABLE Horizontal equity

OUTCOME Low High
Procedural fairness Low 3.44 4.22*
High 3.83 3.9

FAVOURABLE Horizontal equity

OUTCOME Low High
Procedural fairness Low 5.05* 4.55*
High 4.29* 5.25*

84
Figure 1- Graphs of two-wav interactions of ANCOVA with manipulation checks

Horizontal equity (HE)

Effect of HE level and outcome on

perceptions of HE

o 4
iff
C
o 3 •Unfavourable Outcome
+*
Q.
qj _ •Favorable Outcome
a 2
4J
Q.

Low HE High HE

Procedural fairness (PF)

Effect of PF level and outcome on

perceptions of PF

•Unfavourable Outcome

•Favorable Outcome

Low PF High PF

85
APPENDIX A - Tax Fairness-Tax Compl ance Literature Review
Study Key findings Fairness Tax fairness measurement Possible Geographic location
Dimension moderators or
mediators
Spicer (1974) • proposed a model of General • Do you think the federal income • n/a • United States
tax evasion in which fairness tax is a fair tax? Yes/No (and why)
taxpayer perceptions of • 1 get fair value for my tax dollars
low fairness lead to low Exchange (5-point scale); How do you feel
compliance if cheating equity about the level of taxation
restores fairness; some nowadays in light of services
empirical support for his provided? (5-point scale from 'far
model too high' to 'far too low')
• Do you think that on the whole
the burden of taxes is: (5-point
Vertical equity scale from 'very fairly distributed'
to 'very unfairly distributed')
Vogel (1974) • an inverse Exchange • 3 questions (scale not given): Do • n/a • Sweden
relationship between equity you think you have had more or
income level and less benefit from government
taxpayer attitude programs than the average
towards both exchange taxpayer; Consider all social
equity and vertical benefits, taxes are not too high; Do
equity you think the taxes you have to pay
are reasonable considering the
benefits received
Vertical equity • various questions (scale not
given): The burden of taxes must be
reduced at any cost; The tax system
produces a fair distribution of the
burden of taxes; If the burden of
taxes has to be increased, an
increase of sales taxes is preferred;
Income tax rate should be the same
regardless of amount of income;

86
 Extra incomes should not be liable
to taxes; Marginal rates of taxes are
far too high.

Spicer & • significant correlation Exchange • questions about value received • n/a • United States
Lundstedt (1976) between "feelings of equity for tax dollars
inequity" and "tax
evasion"

Mason & Calvin • exchange equity and Exchange • Two questions: Do you think you • n/a • United States
(1978) belief that a tax system equity receive more or less benefits from
is unfair were unrelated programs and services of state
to tax evasion government than the average
person in the state; Are state taxes
reasonable or unreasonable,
considering the benefits received
(scale not provided)

Spicer & Becker • the amount of taxes General • information provided to • n/a • United States
(1980) evaded will increase for fairness participants about relative tax rates
victims of fiscal inequity
but decrease for
beneficiaries of fiscal
inequity

Keenan & Dean • taxpayers did not General • A person shouldn't let his opinion • n/a • Scotland
(1980) justify tax evasion if fairness about the fairness of the tax system
they felt a tax system influence his willingness to pay
was unfair taxes (scale not given)
• A person has a right to evade tax
if he feels the tax system is unfair to
him personally (scale not given)
• If a person feels he does not get
Exchange his fair share of the benefits of the
equity money the government raises in

87
 tax, then he has a right to put
things right by evading tax

Dean, Keenan & • a sample of Scottish General • not provided • n/a • Scotland
Kenney(1980) taxpayers generally fairness
perceived tax
unfairness; tax
unfairness was not
correlated with tax
evasion

Scott & Grasmick • perceptions of Exchange • 6 questions: Very few tax dollars • n/a • United States
(1981) exchange inequity have equity are spent by the government on
no direct effect on tax things which are useful to a person
cheating, but there was like me; All things considered, 1 feel
an indirect effect once that the amount of income tax 1 am
inhibitory variables asked to pay is about right;
were introduced Generally, 1 get a reasonable level
of service from the government for
the amount of taxes 1 pay; There
are a number of government
services and programs for which 1
am very thankful; Current tax laws
require me to pay more than my
fair share of income taxes; 1 don't
seem to use government services
and programs as much as other
people do.
Warneryd & • significant Exchange • 10 attitude statements (not • n/a • Sweden
Walerud (1982) relationship between equity provided), some (# unspecified) of
general feelings of tax which relate to exchange inequity
inequity and those who ("what a person gets from the

88
 admitted cheating system in comparison with what he
versus those who did should get")
not admit to cheating
Groenland & van • limited empirical General • a 13-item 'Evaluation of Taxation' • n/a • Netherlands
Veldhoven (1983) support for a fairness scale (not provided)
psychological model of
tax evasion which
incorporates tax
fairness

Mason & Calvin • opinions of general General • Is the state tax system fair or • n/a • United States
(1984) fairness of a tax system fairness unfair to you personally? (fair=l; no
were not related to an opinion=0; unfair=-l)
increase in admitted tax
evasion, although
perceptions of an
income tax system have
some bearing on tax
evasion

Wallschutzky • exchange inequity Exchange • evaluation of income tax, • n/a • Australia

(1984) was the most important equity considering government services,
justification for tax too high (scale not provided)
evasion
Kaplan & Reckers • general fairness is not General • belief that the federal income tax • n/a • United States
(1985) associated with tax fairness is fair (5-item scale)
evasion
Etzioni (1986) • a sense that taxes are General • How do you feel about the • n/a • United States
unfair is more likely to fairness present federal income tax system
lead to tax evasion than - do you feel it is quite fair to most
increasing tax rates and people, or reasonably fair, or
income level somewhat unfair, or quite unfair to
most people?

89
Porcano (1988) • exchange inequity and Procedural • 2 questions about formulation of • n/a • United States
negative perceptions of fairness tax laws; 1question about IRS
procedural fairness are enforcement procedures
associated with tax Exchange • 2 questions: respondents
evasion equity compared the benefits they
received to the amount of taxes
they paid, and compared the
benefits they received to the
benefits received by the average
General taxpayers
fairness • does the tax system treat
everyone fairly
Hite & Roberts • fairness is an General • As a result of tax reform, the • n/a • United States
(1992) important determinant fairness income tax system is more fair
for explaining whether (Likert 1 to 5); respondents also had
tax changes are seen as to rank 11 fairness variables (Likert
improvements; lto 5)
perceptions of fairness
are positively related to
expectations of
compliant behavior
Collins, Milliron & • perceptions of General • 1 question about fairness of tax • n/a • United States
Toy(1992) unfairness unrelated to fairness laws for one's own income
segments of situation; 1 question about
noncompliant taxpayers exchange with government; 1
question about distribution of tax
burden
Aim, Jackson & • compliance is greater Exchange • tax payments of subjects were • n/a • United States
McKee (1992) when individuals equity paid into a group fund, and then
perceive some benefits reallocated to group members
from a public good
funded by their tax
payments

90
Bordigrion (1993) • developed a model Exchange • n/a • n/a • United States
whereby compliance is equity,
a function in part of horizontal
public expenditure and equity, vertical
tax rates equity
Roberts (1994) • public service General • Do you believe that changes in • n/a • United States
advertising can improve fairness the income tax during the past five
perceptions about tax years have made the tax law more
fairness and attitudes or less fair? (Much more fair to
towards compliance Much less fair)
Exchange • Overall, how high or low are the
equity income taxes Americans pay
compared to the benefits and
services we receive from the
federal government? Compared to
the benefits, income taxes are: too
low (1) to too high (5)
Vertical equity • 3 questions asking if low, middle
or horizontal and high-income persons were
equity paying more or less than their fair
share
Hasseldine & • perceptions of General • subjects rated the fairness of the • n/a • New Zealand
Kaplan (1994) unfairness are unrelated fairness New Zealand tax system
to tax compliance
Roberts & Hite • no significant positive General • not provided • n/a • United States
(1994) association between fairness
attitudes that the tax
system is unfair and
admitted noncompliant
behavior

91
Moser, Evans & • subjects reported less Horizontal • horizontal equity manipulated • n/a • United States
Kim (1995) (more) income as tax equity through tax rate differentials
rates increased Exchange • exchange equity manipulated by
(decreased) when they equity holding amount of public goods
were treated constant
inequitably relative to
others, but not when
they were treated
equitably relative to
others

Worsham (1996) • only procedural Procedural • inaccuracy manipulated through • n/a • United States
unfairness experienced fairness IRS error informing subjects they
vicariously increases the had underreported income and
level of noncompliance owed more
• inconsistency manipulated
through different audit likelihood
rates
Eriksen & Fallan • knowledge increases General • questions about the tax burden in • tax knowledge • Norway
(1996) perceptions of fairness, fairness Norway, opinion about income
which affects attitudes taxes, tax rates re: wealth tax, and
and possibly compliance personal control over taxes (3 and
4-point scales)
Bobek(1997)& • perceived unfairness General • survey questions, e.g. "In general, • n/a • United States
Bobek & Hatfield was not a primary fairness 1 think the current United States
(2003)42 determinant of Federal Income Tax system is fair"
respondents'
compliance choices
Maroney, Rupert • there are indirect Vertical equity • respondents rated each • type of income • United States
& Anderson effects associated with component of income and each
(1998) unfairness perceptions, component of the tax burden on a
i.e. fairness perceptions 7-point Likert scale ("extremely
of taxing one type of unfair to tax" (-3) to "extremely fair

42 The major paper published from Bobek's (1997) doctoral thesis was Bobek & Hatfield (2003).

92
 income affect the to tax"(3)). No midpoint was
compliance decision for provided.
another type of income

Maroney, Rupert • there are different Exchange • manipulated by providing • type of income • United States
& Wartick (2002) perceptions of fairness equity, vertical explanations to subjects
across dimensions; self- equity & corresponding with each kind of
interested taxpayers horizontal equity
respond most to equity
exchange equity;
providing explanations
does not always
increase fairness
perceptions
Wenzel (2002a) • procedural and Procedural & • measured "microinjustice" •outcome • Australia
distributive fairness distributive (horizontal & vertical equity) with 3 favourability
(horizontal & vertical fairness questions; measured • social identity
equity) were positively "macroinjustice" (exchange equity)
associated with with 3 questions; measured
compliance only for procedural fairness with 10
respondents who questions
identified strongly with
Australians; no main
effect for exchange
equity on tax
compliance
Wenzel (2002b) • reminder letters Procedural • measured by providing different • n/a • Australia
based on principles of fairness letters according to different
procedural fairness did explanations of procedural fairness
not yield more positive (informational versus
reactions and greater interpersonal)
rates of compliance
compared to the
standard letter issued

93
 by the Australian
Taxation Office
Kim (2002) • the effect of exchange Exchange • perceptions of exchange equity • n/a • United States
equity on reporting equity were measured across a 7-point
depends on the extent scale. Subjects were also asked the
to which taxpayers degree to which their perception of
perceive equity to be the fairness of their exchange with
important when making the government affected their
tax reporting decisions decision as to how much income to
report.

King & Sheffrin • individuals remained Exchange • respondents were told that "the • framing effects • United States
(2002) averse to cheating equity U.S. General Accounting Office has
regardless of type of found that the government spent
equity $2 billion on missiles that cannot be
used in U.S. equipment. This
means that the government wasted
$2 billion."
"social" equity • co-worker is the referent

Niemirowski, • no significant General • 7 questions measured 'fairness of • n/a • Australia

Baldwin & differences relating to fairness taxes' (Likert 1 to 7)
Wearing (2003) tax fairness among
compliant and non-
compliant taxpayers
Trivedi, Shehata • found a significant Horizontal • "tax inequity was induced by first • peer reporting • Canada
& Lynn (2003) main effect between equity telling subjects that they all faced a behavior
horizontal equity and 30 or 10 percent tax rate (equitable
tax compliance treatment) and later telling those
• subjects who were subjects who faced the 10 percent
taxed at a lower level (30 percent) tax rate that other
than others significantly subjects faced a 30 percent (10
increased their percent) rate, i.e. motivating them
compliance when they to think of themselves as
discovered they were beneficiaries (victims) of the tax

94
 beneficiaries of tax system." (p.184)
inequity

Murphy (2004a) • found that procedural Procedural • 11 questions measured facets of • trust • Australia
unfairness is associated fairness procedural fairness •outcome
with resistance to favourability
paying taxes
Murphy (2004b) • found that taxpayers Procedural • qualitative interviews about • n/a • Australia
challenged by the fairness taxpayers' experiences
Australian Tax Office
(ATO) defied the ATO's
demands because the
ATO's procedures were
perceived to be unfair

Murphy (2005) • taxpayers who felt Procedural • measures of procedural fairness • tax debt • Australia
their treatment was fairness combined from sub-concepts of •outcome
procedurally unfair trustworthiness, neutrality, and favourability
were less likely to feel respect • prior conflict
obliged to obey the • legitimacy
ATO's decisions
Richardson • there seems to be no General • measures adopted from Gerbing • n/a • Australia & Hong
(2005a, 2005b); universal patterns or fairness, (1988) Kong
Gillligan & relationships cross- exchange
Richardson (2005) culturally between tax equity, other
fairness and tax so-called
compliance behavior dimensions
• many facets of tax
fairness perceptions
have different impacts
across culturally distinct
jurisdictions

95
Kim, Evans & • main effect of Horizontal • manipulated by changes in tax • n/a • United States
Moser (2005) horizontal equity on equity rates
compliance Exchange
• no main effect of equity • manipulated by no government
exchange equity on services versus government
compliance services
• no significant
interaction
Richardson • found 6 dimensions of General • measures adopted from Gerbing • n/a • Hong Kong
(2006b) tax fairness; 3 are fairness, (1988)
significantly and Tax rate
positively associated structure,
with tax compliance Middle income
(general fairness, earners' tax
middle income earners share,
tax burden, exchange exchange
equity) equity, self
interest, special
provisions for
high income
earners
Kirchler et al. • tax officials, compliant Horizontal • measures not provided; 2 items • complexity • Australia
(2006) taxpayers and non- equity, vertical for horizontal & vertical equity • social norms
compliant taxpayers equity, (combined); 2 items for exchange
perceived no significant exchange equity
differences among equity
horizontal and vertical
equity, but significant
differences among
exchange equity
• horizontal, vertical,
and exchange equity
were significantly and
positively associated
with tax compliance

96
Verboon & van • distributive fairness Distributive • 1 item (7-point scale): "In my • outcome • Netherlands
Dijke (2007) moderates the role fairness opinion the tax office takes care favourability
between outcome that everyone pays the right
favourability and tax amount of tax"
compliance; fair
outcomes result in a
strong relationship
between outcome
favourability and
compliance.
Feld & Frey • tax morale is like a Exchange • n/a - conceptual framework only • personal • n/a (but cite
(2007) psychological tax equity, relationship empirical evidence
contract between procedural between taxpayers from Switzerland)
taxpayers and fairness and tax
government. Citizens administrators
will comply even if they
do not experience
exchange equity if the
political process is
perceived to be fair and
legitimate. Tax morale
is also a function of the
personal relationship
between taxpayers and
tax administrators.

Kirchler, Hoelzl & • fairness is one of the Distributive, • n/a - conceptual framework only • trust • n/a
Wahl (2008) factors in a framework procedural and • power of
for tax compliance in retributive authorities
which the power of tax justice
authorities and trust in
tax authorities are
relevant dimensions

97
Murphy & Tyler • emotions mediate the Procedural • 2 items: 'ATO cares about • emotions • Australia
(2008) effect of procedural fairness position of taxpayers'; 'ATO tries to
fairness on tax be fair in decision-making'
compliance

Murphy (2008) • individual differences Procedural • 8 items covering neutrality, • affect intensity • Australia
in affect intensity fairness fairness, and respect
moderate the effect of
procedural fairness on
tax compliance behavior
Hartner etal. • motivational postures Procedural • 10 questions covering • national identity • Australia
(2008) of defiance moderate fairness representativeness, decision­ judgments
the relation between making, and treatment • motivational
procedural fairness and postures of defiance
tax compliance

Verboon & • significant positive Procedural • 7 items • personal norms • Netherlands

Goslinga (2009) association between fairness
distributive fairness and Distributive • 6 items (measuring horizontal,
tax compliance for fairness vertical and exchange equity)
respondents with low
personal norms only
• procedural fairness
had a positive
association with tax
compliance

98
Saad (2009)43 • only horizontal equity Horizontal • 20 questions • tax knowledge, • Malaysia
was significantly equity tax complexity,
associated with Vertical equity norms
compliance Exchange
equity
Procedural
fairness
Yong & Rametse • procedural fairness Procedural • qualitative interviews about • n/a • New Zealand
(2010) determines extent of fairness taxpayers' experiences
compliance cooperation

Palil (2010) • general fairness was General • question comparing two • n/a • Malaysia
not a significant variable fairness taxpayers, one who was a full-time
when predicting schoolteacher, the other who
compliance taught part-time and ran an
unlicensed daycare
Hartner et al. • significant and Distributive • sample statement for each • national identity • United Kingdom
(2011) positive association fairness measure provided; all measures not • outcome
between distributive (exchange provided favourability
fairness and individual perspective)
tax compliance
Verboon & van • no main effect of Procedural • 5 measures which cover • sanction severity • Netherlands
Dijke (2011) procedural fairness on fairness procedural fairness and • moral evaluation
tax compliance informational fairness of tax authority
• interaction effect of
procedural fairness and
sanction severity
(sanction severity
increased compliance
only in the procedurally
fair condition)

43 Saad's (2011) doctoral thesis examined perceptions of fairness in New Zealand and Malaysia, but did not specifically examine the impact of fairness
dimensions on compliance intentions, although she found that Malaysian taxpayers had a stronger propensity to comply when they perceived fairness
than New Zealand taxpayers. Saad (2009) was a paper from her doctoral thesis.

99
Appendix B - Final Survey Questions

HORIZONTAL EQUITY
1. It is fair for me to pay a similar share of income tax compared with other taxpayers
earning an equivalent amount of income.
2. It is fair for individuals with similar amounts of income to pay a similar amount of
income tax.
3. Two taxpayers who earn the same income should pay the same amount of income
tax.
4. Two identical taxpayers should pay the same amount in income tax.
5. It is fair that 'equals before tax are equals after tax*. For example, if a person
earning $100,000 before tax pays $20,000 tax, and is left with $80,000 after tax,
everyone earning $100,000 before tax should be left with $80,000 after tax.

VERTICAL EQUITY
6. It is fair that high-income earners are subject to tax at progressively higher rates
than middle-income earners.
7. It is fair that middle-income earners are taxed at a lower rate than high-income
earners.
8. High-income earners should pay a greater share of income tax than low-income
earners.
9*. All taxpayers should pay the same amount of income tax, regardless of income.

EXCHANGE EQUITY
10.1 get fair value in government services in exchange for the income tax I pay.
11. The income tax I pay is returned to me in social services received.
12*. I don't get my fair share of government services.
13. Income taxes are necessary to fund important social services.
14*. I don't like to pay income tax because the government wastes my money.
15. The amount I pay in income tax represents the amount I receive in government
services.

PROCEDURAL FAIRNESS
16. In a dispute, the CRA would evaluate my information objectively and fairly.
17. The CRA corresponds with taxpayers in a timely manner.
18. The CRA's procedures lead to consistent outcomes.
19*. The CRA does not take my interests into account.
20. The CRA treats everyone in the same manner.
21. The CRA takes the circumstances of individual taxpayers into account when
making decisions.
22. The CRA treats people as if they have honestly declared their taxes.

100
23. The CRA makes sure to have the necessary information available to make
decisions.
24*. The CRA finds it more important to have an easy job than to make it easy for
taxpayers.

TAX COMPLIANCE
25. Taxpayers are likely to understate income that cannot be checked by the CRA (e.g.
cash tips).
26. Taxpayers are tempted to understate income that cannot be checked by the CRA
(e.g. cash tips).
27. Taxpayers are likely to overstate deductions on their tax return (e.g. vehicle
expenses).
28. Taxpayers are tempted to overstate deductions on their tax return (e.g. vehicle
expenses).
29. Taxpayers pretend ignorance and do not declare all cash income to the CRA.

The scale for each question was as follows:

Strongly disagree 1 2 3 4 5 6 7 Strongly agree

Note: reverse-scored items are indicated with an *.

OTHER QUESTIONS

Gender: Male Female

Age: under 21 21-30 31-40 41-50 51-60 61-70 over 70

Do you usually prepare your own tax return? Yes No

Have you ever been audited by the CRA? Yes No

Have you ever had dealings with the CRA? Yes No

Your annual income less than $25,000

Between $25,001 and $49,999
Between $50,000 and $74,999
Between $75,000 and $100,000
Over $100,000

101
Where in Canada do you reside? British Columbia
Alberta
Saskatchewan
Manitoba
Ontario
Quebec
New Brunswick
Nova Scotia
Newfoundland
Prince Edward Island
Yukon, NWT, or Nunavut

102
Appendix C - Survey webpaees (final version, edition #1)

XORKII
« * I i» t « <• V
Income Tax Perceptions O
Schuiidi
Pag«1 of 8

INa atti&aakt ahouttaxpsyar atUudat toward* th# kmnwtax ayatam In Canada.IMa «tudyi« anownoua and al
>doim>Ooiii<i«bBKaptatrtcllyc«i»l»l»iiitlat
TN» atu&la bakigconducted byHw Schufcti School or Bniinnt alYfcrit IMmmMk and la Inno myafflMad mm itw
Canada rtewawua Agawcy.
r youhaM quaattona about tha rataarcti m ganaral «r atari your rate Mma «tu«V, ptoata fMtraa to contact tha load
raaaarchar, Jonathan Parrar, athla Graduala Smaivtaoc, Dr. Unda thoma,by lataid tuna (both<1t-738-5Qg2) or by
wnal flfirTafOfl^ach^acKyofKaca; WiomiQiibyoflaua). TWa raaaarchhaa bain twdawad and awrrwail bytha
Human PartM»anUnavMw SuD-Conwdttaa, YocK UnM»««/» nima fUvMw Board and mifoiiii* totha arandirda of
tha Canadbn TiKoanci RaaaarehBMcs guMalna*. ITynikaw any quaaHona akout tMa trocaaa, or about yaw riohta 1
aa a parte***In tha atufc (tancontact ttia Sr.Manigai 4 Pofcy JUMaar tar tha Offlca or RntMvctt EtNca, 5th Floor,
y«rk Raaaaidi T«nr.Ytrlt UnMrMy (Maptana 41«-R»aai4 or ajnalaraflyortau:*).
Participant
Ictmaanl to partlcfcataIn tha lax atu^nIHaw uodaratood tha natura or tMa proUct and Mlah topartdpata.Iam not
mMng anyot my lagal rigMa hy algnlno tNa form. By dcMngon tfia HaulPaga" button balow,IIndicia nycotaanL

nM
Po Not Sava Aittww»

Powered by UCCASS vt.s I CopyrigN 92004 w HdrwM, Al Reserved

103
YORK
OlMMilt
11 Income Tax Perceptions *
SdHilich
Page 2 of8

Please Mfcata how muchyou agree or ttfeepeewtti each oftoefDlowingstatements. Some refer to the Canada
Rwanda Agency (CRA).

Strongly
Neither
Diaaora® Disagree aflrttnor Ajjree ^ Strongly
disagree 8 somewhat somewhat ^ agree
disagree

1.' it is fair for me to pay a similar

share of income tax compared
with other taxpayers earning an
equivalent amount of income.

2. * it is Mr for Individuals with

simitar amounts of income to pay
a similar amount of income tax.

3 * Two taxpayers who earn the

same income should pay the
same amount of income tax.

4. * Two Identical taxpayers

should pay the same amount in
income tax.

5 * Igel fair value ingovernment

sendees in exchange for the
income tax (pay.

6 * The income tax I pay is

returned to me in social sendees
received.

7 * income taxes are necessary to

fund important social seivices
r r r
8 * The CRA does not take my
interests into account
r r c

«ProMou6Pttc» | NoaPaoo»

Ou> Swmy •Do Na> Savt Amwere

Powered by UCCASS vis (.Copyrights 2004 Jetavr »*m*, Alftytfs Reserved

104
YORK
.J.
«. J V J..* J
IL Income Tax Perceptions ©
Schullch
Pag* 3 of 8

Neither
Sfrong* DjtaarM Disagree a_rM nDr Agree ^ 8trongly
disagree ultaflrM somewhat x!!™ somewhat *°re# agree
disagree

9. * I doni gatmyfair share of

government services
r
1 0 * 1d o n i l i k e t o p a yi n c o m e t a x
because the government wastes
my money.

11. * The amount ipay in income

tax represents the amounti receive
in government services

12 * It Is fWr thathigh-income
earner* are subject to tax at
progressive* higher ratee than
middle-income earners.

13. * It is fair thatmiddle-income

earners are taxed at a lower rate
than high-income earners

14. * High-income earners should

pay a greater share of Income tax
than low-income earners

15.' All taxpayers should paythe

same amount of income tax,
regardless ofincome

16 * The CRA treats everyone in

the same manner.

«Pr»*ow Prat I N«xiPaQt»

Qua Smwy-Do No*Saw* Atuwm I

Powered try UCCAS$ v r , Copyritftf 92004 Jotm w hcams, A* ft&tis Reserved

105
YORK
Page 4o(6
IL Income Tax Perceptions
Schullch

Neither
Strong* Disaoree 0l8»Qr« Agree Strongly
llltAfttSa " <Amauihsl agree nor Agree
disagree somewhat
disagree

17 * In a dispute, the CRA would

evaluate my Information objectively
and flirty.

18 ' The CRA corresponds with

taxpayers In a timelymanner.
C r r

19.* The CRA*s procedures lead

to consistent outcomes.
r r r

20.'The CRA takes the

circumstances of IndMduai
taxpayers into account when
mating decisions.

21.' The CRA treats people asif

fisy have honestly declaredtheir
taxes.

22. * The CRA makes sure to have

the necessary Information
available to make decisions.

23. * The CRA finds it more

important to have an easy job than
to make it easy for taxpayers.

«<Pr»viOM»Paw I N«xtPaa«»

OuilSwvKf DoNotS«v»An»w>r» I

Powered by UCCA$< «is t.CopyrlgN <12004 -wmw. Reserved

106
YORK
Pag# 5 of 8
IL Income Tax Perceptions
Schuikh

Strongly D| Disagree Agree ^ Strongly

disagree somewhat ^Sagree somewhat agree

24 * It is fair that 'equalsbefore tax are

equals alter tax*. For example, If a
person earning $100,000 before tax
pays $20,000 tax. andis left vtfth
$80,000 after tax, everyone earning
$100,000 before tax should be let)wit»
$80,000 after tax. everything else the
same

«Pn*lou«Pw I N«xtPag«»

Powered by uccASSvt* t. Copyrp*•2004 John w. Hetmts, AIRitfttRewrved

107
YORK|| Income Tax Perceptions 0
K&mfttRL Schulich
Page 6 or 8

Neither
Strongly Disagree Strong*
Disagree agree nor
disagree somewhat agree
disagree

25 * Taxpayer* are likely to

understate income that cannot be r r r- r r
r r
checked by the CRA (e.g. cash
tips).

26 * Taxpayer* are tempted to

understate income that cannotbe
checked by the CRA(e.g. cash
r r r r r
r r
tips).

27 ' Ifcxpayere are likely to

overstate deductions on their tax C C C C C r r
return (e.g.vehicle expenses).

28.' Taxpayers an temptedto

overstate deductions on their tax c C C C C r r
return (e.g. vehicle expenses).

29 ' Taxpayers pretend

ignorance and do not declare ail C C C C C r r
cash income to the CRA.

«
QuNSurmy

Powwedby >JCCAS$ VI» (.Copyright ©2004 j«w w Hotm**, AB fights Reserved

108
 YORK Income Tax Perceptions
Sctiullch

! Plena take a minute to complete a few final question*.

| 30. PIMMMteate your ©wider.

| f Female
: ^ Male

: 31. Please hdteate yew* age.

f under 21
r 21*30
f 31-40
<* 41-50
r si.$o
^ 6i-ro
*** over 70

32. Do you ninety prepareyour own tax return?

r NO

: 33. Havayou aver bMn audited bythe CRA?

No
"fts

34. Have you ever had deaflnsa with the CRA?

** No

35. Please indicate your annual income.

r less than $25,000

r between $25,000 and $49,999
r
between *50,000 and $74,999
r between $75,000 and $100,000
r over $100,000

38. Where in Canada do you reside?

British Columbia
*"* Alberta
r Saskatchewan
r Manitoba
Ontario
C Quebec
f New Brunswick
r Nove Scotia
Newfoundland
Prince Edward Island
f Yukon, NWT. or Nunavut

i»Paa» I NwPaa«» I

Powered by uc CASS V ta I. Copyright 9 2004 JO** W. HOT***, AL Reserved

109
YORK|_
:11w _
Income Tax Perceptions
> BLri! Schullch
Schulld

Pag« 8 of 8

Thank you far your parttclpattoii In deft on Tintoh* to »ubm* your rotponsOT,

«Rj^ou«Paot I Flmah I

QurtSuiyy PoNotSawAntwfff 1

Power»dby UCCAS$VI.« i.Cow&tf *2004 Jeta w Swerved

110
Appendix D - Structural Model

HE1 HE2 HE4

HE

CI2

CIS

VE

VE3

PF6
PF3 PF4

111
Appendix E - Regression Results for Subsets of the Sample

Subset Category Sample size Regression results

(significant results are indicated
with an asterisk, p<0.05)
Gender Male 277 HE = 0.274, p=0.005 *
VE = 0.068, p=0.410
EE = 0.007, p=0.960
PF = -0.087, p=0.521

Female 316 HE = 0.300, p=0.001 *

VE = 0.042, p=0.450
EE = -0.181, p=0.087
PF =-0.123, p=0.231

Age Under 21 29 HE = -0.527, p=0.09

VE = 0.319, p=0.072
EE = -0.590, p=0.04 *
PF = 0.339, p=0.296

21-30 116 HE = 0.321, p=0.014 *

VE = 0.093, p=0.304
EE = 0.072, p=0.630
PF =-0.222, p=0.194

31-40 87 HE = 0.258, p=0.088

VE = 0.176, p=0.087
EE = 0.057, p=0.775
PF = -0.164, p=0.476

41-50 102 HE = 0.297, p=0.038 *

VE = 0.125, p=0.190
EE = -0.444, p=0.028 *
PF = 0.173, p=0.441

51-60 155 HE = 0.188, p=0.037 *

VE =-0.139, p=0.174
EE = -0.137, p=0.438
PF =-0.139, p=0.314

61-70 184 HE = 0.218, p=0.014 *

112
 VE = -0.133, p=0.282
EE = -0.077, p=0.738
PF = -0.158, p=0.359

Over 70 21 HE = 0.716, p=0.016 *

VE = 0.213, p=0.630
EE = -0.808, p=0.103
PF =-0.122, p=0.537

Prepare Own Yes 256 HE = 0.322, p=0.001 *

Tax Return VE = 0.068, p=0.281
EE = -0.049, p=0.677
PF =-0.137, p=0.204

No 327 HE = 0.230, p=0.006 *

VE = 0.037, p=0.588
EE = -0.134, p=0.318
PF = -0.052, p=0.691

Audited by Yes 126 HE = 0.216, p=0.039 *

CRA VE = -0.022, p=0.814
EE = 0.009, p=0.970
PF =-0.177, p=0.436

No 455 HE = 0.289, p=0.001 *

VE = 0.065, p=0.243
EE = -0.116, p=0.236
PF = -0.105, p=0.270
Dealings Yes 276 HE = 0.300, p=0.001 *
with CRA VE = -0.015, p=0.839
EE = -0.239, p=0.067
PF = -0.004, p=0.970

No 309 HE = 0.268, p=0.001 *

VE = 0.097, p=0.125
EE = -0.011, p=0.923
PF = -0.088, p=0.461

Income Under $25,000 238 HE = 0.368, p=0.001 *

VE = 0.027, p=0.695
EE = -0.170, p=0.197

113
 PF = -0.034, p=0.787

Between 198 HE = 0.332, p=0.001 *

$25,001 and VE = 0.062, p=0.499
$49,999 EE = -0.204, p=0.245
PF = -0.102, p=0.524

Between 89 HE = 0.257, p=0.155

$50,000 and VE = 0.233, p=0.148
$74,999 EE = -0.016, p=0.938
PF = 0.004, p=0.984

Between 41 HE = 0.018, p=0.925

$75,000 and VE =-0.171, p=0.499
$100,000 EE = -0.004, p=0.994
PF = 0.207, p=0.574

Over $100,000 19 HE = 0.244, p=0.033 *

VE = 0.185, p=0.005 *
EE = 0.364, p=0.045 *
PF = -0.503, p=0.035 *

Province British 73 HE = 0.455, p=0.024 *

Columbia VE = 0.119, p=0.529
EE = -0.224, p=0.289
PF = -0.009, p=0.959

Alberta 69 HE = 0.272, p=0.116

VE = 0.100, p=0.388
EE = -0.039, p=0.882
PF =-0.111, p=0.645

Saskatchewan 15 n/a

Manitoba 63 HE = -0.184, p=0.105

VE = 0.146, p=0.357
EE = -0.041, p=0.762
PF = -0.019, p=0.875

114
 Ontario 243 HE = 0.285, p=0.001 *
VE = 0.095, p=0.162
EE = -0.001, p=0.996
PF =-0.256, p=0.048 *

Quebec 21 HE = -0.772, p=0.624

VE = 0.105, p=0.609
EE = 0.353, p=0.897
PF =-1.796, p=0.821

New 23 HE = 2.106, p=0.107

Brunswick VE = -1.395, p=0.088
EE = -0.943, p=0.037 *
PF = -0.174, p=0.685

Nova Scotia 68 HE = 0.218, p=0.164

VE = 0.197, p=0.144
EE = 0.054, p=0.751
PF = 0.205, p=0.371

Newfoundland 19 n/a

Edition 1 298 HE = 0.242, p=0.001 *

VE = 0.112, p=0.064
EE = -0.118, p=0.327
PF = -0.034, p=0.691

2 295 HE = 0.408, p=0.001 *

VE = -0.035, p=0.668
EE = -0.030, p=0.870
PF = -0.301, p=0.260

115
Analysis

The results from the main sample were generally the same for each subset. There were

no differences for gender, age, taxpayers who prepared their own tax returns versus

those who did not, taxpayers who were audited by the CRA versus those who were not,

and taxpayers who had had dealings with the CRA versus those who had not.

Horizontal equity was the only significant path for lower income earners (those who

earned less than $50,000); there were no significant paths for middle income earners

(those who earned between $50,000 and $100,000); and all paths were significant for

high income earners (those who earned greater than $100,000). Perceptions of tax

fairness seem to be impacted by income level.

116
Appendix F - Experimental scenarios

The Home Buyers' Plan (HBP) and Canada's tax system

This study asks about taxpayer attitudes towards the Home Buyers' Plan (HBP) and the
income tax system in Canada. This study is anonymous and all information will be kept
strictly confidential.

The Home Buyers' Plan (HBP) is a program that allows first-time home buyers to
withdraw up to $25,000from their RRSP (registered retirement savings plan) to use as
a downpayment. The amount withdrawn must be repaid over a maximum of 15 years.
If the required annual amount is not repaid, the Canada Revenue Agency (CRA)
considers the missed payment to be taxable income.

Part 1contains a tax scenario about the HBP and asks for your opinion on several issues.
The scenario was adapted from a case handled by the Office of the Taxpayers'
Ombudsman, an independent agency appointed by Parliament to resolve issues
between taxpayers and the CRA. Part 2 contains some demographic questions. Part 3
contains a short task.

The study will take about 15 minutes to read and complete.

If you have questions about the research in general or about your role in the study,
please feel free to contact the lead researcher, Jonathan Farrar, or his Graduate
Supervisor, Dr. Linda Thorne, by telephone (both 416-732-5062) or by e-mail
(ifarrar06@schulich.vorku.ca; lthorne@ssb.vorku.ca). This research has been reviewed
and approved by the Human Participants Review Sub-Committee, York University's
Ethics Review Board, and conforms to the standards of the Canadian Tri-Council
Research Ethics guidelines. If you have any questions about this process, or about your
rights as a participant in the study, please contact the Sr. Manager & Policy Advisor for
the Office of Research Ethics, 5th Floor, York Research Tower, York University (telephone
416-736-5914 or e-mail orePvorku.ca).

Participant:

I consent to participate in this research project. I have understood the nature of this
project and wish to participate. I am not waiving any of my legal rights by signing this
form. By clicking 'Next', I indicate my consent.

117
Part 1

Please read the scenario carefully and answer some follow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 50%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason not to contact the CRA about the new charges,
that the interest and penalties would not be waived under any circumstances, and to
refer to the CRA website to read about the HBP repayment terms and conditions.

In other words, Jason was not provided with the opportunity to voice his concerns, nor
would the additional amounts owing be cancelled.

118
Part 1

Please read the scenario carefully and answer some follow-up questions on the next
pages. Imagine if it was you instead of the taxpayer.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 20%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason not to contact the CRA about the new charges,
that the interest and penalties would not be waived under any circumstances, and to
refer to the CRA website to read about the HBP repayment terms and conditions.

In other words, Jason was not provided with the opportunity to voice his concerns, nor
would the additional amounts owing be cancelled.

119
Part 1

Please read the scenario carefully and answer somefollow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 50%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason to contact the CRA if he had any concerns. Jason
phoned the CRA, explained that he had made the required repayment, and expressed
regret that he had been reassessed.

The CRA was unwilling to reverse the reassessment. Therefore, although Jason was
provided with the opportunity to voice his concerns, the additional amounts owing were
not cancelled.

120
Part 1

Please read the scenario carefully and answer some follow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 20%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason to contact the CRA if he had any concerns. Jason
phoned the CRA, explained that he had made the required repayment, and expressed
regret that he had been reassessed.

The CRA was unwilling to reverse the reassessment. Therefore, although Jason was
provided with the opportunity to voice his concerns, the additional amounts owing were
not cancelled.

121
Part 1

Please read the scenario carefully and answer somefollow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 50%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason to contact the CRA if he had any concerns. Jason
phoned the CRA, explained his situation, and expressed regret that he had been
assessed interest and penalties. The CRA agent acknowledged the CRA's error, told him
that the CRA would cancel the amounts owing, and promised to issue his refund as soon
as possible.

Thus, Jason was provided with the opportunity to voice his concerns, and the additional
amount owing was reversed.

122
Part 1

Please read the scenario carefully and answer some follow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 20%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason to contact the CRA if he had any concerns. Jason
phoned the CRA, explained his situation, and expressed regret that he had been
assessed interest and penalties. The CRA agent acknowledged the CRA's error, told him
that the CRA would cancel the amounts owing, and promised to issue his refund as soon
as possible.

Thus, Jason was provided with the opportunity to voice his concerns, and the additional
amount owing was reversed.

123
Part 1

Please read the scenario carefully and answer some follow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 50%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason not to contact the CRA about the new charges,
and to refer to the CRA website to read about the HBP repayment terms and conditions.
However, about a week after he received the reassessment notice, Jason received
another notice saying that the CRA realized it had made an error, was cancelling all the
charges from the reassessment, and would be processing his refund as soon as possible.

In other words, although Jason was not provided with the opportunity to voice his
concerns, the additional amount owing was reversed.

124
Part 1

Please read the scenario carefully and answer somefollow-up questions on the next
pages. Imagine if it was you instead of Jason.

Jason and his associate were identical in every respect. Both Jason and his associate
earned the same amount and type of income. Jason paid taxes at 20%, and his associate
paid taxes at 20%.

Jason was an employee at a local business. In each of 2009 and 2010, he earned a
modest salary, which was the same in both years. In 2010, he also received a one-time
cash payment of $4,000 for work he did at a landscaping business.

Jason bought his first house in 2009, and took advantage of the home buyers' plan (HBP)
to finance it. Jason withdrew $25,000 from his RRSP.

Jason filed his 2009 tax return on time. He made the minimum required repayment to
his HBP and received a corresponding RRSP contribution receipt. He correctly reported
the repayment of the HBP on his tax return, and he reported all his income, which
consisted only of his 2009 salary. He expected to receive a refund of $250.

When the CRA processed his return, they did not realize his RRSP contribution was a
repayment of the HBP. They mistakenly reassessed his return because they thought he
had not made the required HBP repayment. Consequently, his reassessment notice
showed an increase to his income, a tax balance owing, plus penalties and interest. The
total owing was $840.

The reassessment notice said for Jason not to contact the CRA about the new charges,
and to refer to the CRA website to read about the HBP repayment terms and conditions.
However, about a week after he received the reassessment notice, Jason received
another notice saying that the CRA realized it had made an error, was cancelling all the
charges from the reassessment, and would be processing his refund as soon as possible.

In other words, although Jason was not provided with the opportunity to voice his
concerns, the additional amount owing was reversed.

125
Please answer these questions about the scenario you just read by circling the correct
response.

1. True or false: Jason and his associate were identical in every respect, and earned the
same amount and type of income.
a) true
b) false

2. Did Jason pay a higher rate of tax than his associate?

a) yes
b) no

3. Did the CRA invite Jason to contact them after they issued the reassessment notice?
a) yes
b) no

4. Which of the following happened to Jason?

a) the CRA reversed the additional amount owing and Jason received a refund.
b) the CRA did not reverse the additional amount owing and Jason never received his
refund.

Please read the following statements and indicate your level of agreement by circling the
appropriate number.

Strongly Agree Strongly

Disagree

a) Jason paid a fair amount of income tax compared to his 1 7

associate.

b) Jason's share of income tax was fair when compared with his 1 6 7
associate who earned an equivalent amount of income.

c) Compared to his friend, Jason > been satfsflec .' 3 4 5: <&<•:' 7

the amount of income fax he p

d) The CRA's procedures used to make the decision were fair. 1 2 3 4 5 6 7

e) All in all, the outcome of Jason's situation was fair. 1 2 3 4 S mm

f) The approach or procedures followed in handling Jason's 1 2 3 4 5 6 7

problem were fair.

=5^.5 7

126
h) Overall, things turned out the way they should have. 1 2 3 4 5 6 7

i) The HBP Is an effective way to finance a downpayment. 1 2 3 4 5 6 7

Please read the following statements and indicate your level of agreement by circling the appropriate
number.

Strongly Agree Strongly

Disagree

j) Jason was given ample opportunity to describe his point 12 3

of view.

k) Jason would have thought his outcome was appropriate. 1 2 3 5 6

I) The CRA asked for Jason's input before a decision was made. 12 3 5 6

m) Jasoft would have beenupset at the way his situation l 2 3 5 6

was handled.

n) Generally, taxpayers completely trust authorities' decisions. 12 3 5 6

o) Authorities usually know what Is best for the group. 1 2 3 5 6

p) Jason would be tempted not to declare the cash to the CRA. 12 3 5 6

q) Mon would belikely to declare the $4,000 cash to the CRA. 12 3 5 6

r) Under the circumstances, Jason might choose not to report 12 3 5 6

all of the cash to the CRA.

s) Jason would pretend ignorance and not declare the cash to l 2 3

the CRA.

t) It is very likely that Jason would be caught if he evaded taxes.l 2 3 5 6

u) A taxpayer should always complyLWttli t$crules. 12 3 5 6

v) On his 2010 tax return, how much of the $4,000 in cash do you think Jason would report?
Write amount here:

w) If you were Jason, how much of the $4,000 in cash would you report?
Write amount here:

127
Part 2

Please answer the following demographic questions.

1) Your gender (circle one): male female

2) Prior to this study, had you ever heard of the Home Buyers' Plan? (circle one) yes
no

3) Have you ever had dealings with the CRA? (circle one) yes no

4) Your present age: years

5) The number of months of your full-time work experience:

6) For approximately how many years have you filed an income tax return?

7) Who usually prepares your tax return? (circle one) I do my spouse paid
preparer other

8) Below is a scale on which the political views that people might hold are arranged
from extremely liberal to extremely conservative. Where would you place yourself on
this scale? (please circle a number)

Extremely liberal Extremely conservative

1 2 3 4 5 6 7 8 9 1 0 1 1

9) Of the Liberal and Conservative political parties in Canada, which one do you feel
closer to?
Please circle one: Liberal Conservative

10) Please indicate your highest level of education completed by circling the appropriate
category:

Undergraduate degree Master's degree Doctorate Other

128
11) Please indicate your approximate annual income for 2010 by circling the appropriate
category:

less than $25,000

between $25,000 and $50,000

between $50,001 and $75,000

between $75,001 and $100,000

> $100,000

129
Part 3

In this task, imagine that you have been randomly paired with another person, whom we will refer to
simply as the "Other". This other person is someone you do not know and that you will not knowingly
meet in the future. Both you and the "Other" person will be making choices by circling either the letter A,
B, or C. Your own choices will produce points for both yourself and the "Other" person. Likewise, the
other's choice will produce points for him/her and for you. Every point has value: The more points you
receive, the better for you, and the more points the "Other" receives, the better for him/her.

Here's an example of how this task works:

A B C
You get 500 500 550
Other gets 100 500 300

In this example, if you chose A, you would receive 500 points and the Other would receive 100 points; if
you chose B, you would receive 500 points and the Other 500; and if you chose C, you would receive 550
points and the Other 300. So, you see that your choice influences both the number of points you receive
and the number of points the Other receives.

Before you begin making choices, please keep in mind that there are no right or wrong answers - choose
the option that you, for whatever reason, prefer most. Also, remember that points have value: The more
of them you accumulate, the better for you. Likewise, from the "Other's" point of view, the more points
s/he accumulates, the better for him/her.

For each of the nine choice situations, circle A, B, or C, depending on which column you prefer most:

A B C A B C
1) You get: 480 540 480 6) You get: 500 500 570
Other gets: 80 280 480 Other gets: 500 100 300

A B C A B C
2} You get: 560 500 500 7) You get: 510 560 510
Other gets: 300 500 100 Other gets: 510 300 110

A B C A B C
3) You get: 520 520 580 8) You get: 550 500 500
Other gets: 520 120 320 Other gets: 300 100 500

A B C A B C
4) You get: 500 560 490 9) You get: 480 490 540
Other gets: 500 560 490 Other gets: 100 490 300

A B C
5) You get: 560 500 490
Other gets: 300 500 90

130