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Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation


  • We would like to thank four anonymous referees and the editor of this special issue, Valerie Braithwaite, for very useful suggestions for revision.

Address correspondence to Lars P. Feld, Alfred-Weber – Institute of Economics, University of Heidelberg, Grabengasse 14, D-69117 Heidelberg, Germany. Telephone: +49 6221 54 3100; e-mail:


A psychological tax contract goes beyond the traditional deterrence model and explains tax morale as a complicated interaction between taxpayers and the government. As a contractual relationship implies duties and rights for each contract party, tax compliance is increased by sticking to the fiscal exchange paradigm between citizens and the state. Citizens are willing to honestly declare income even if they do not receive a full public good equivalent to tax payments as long as the political process is perceived to be fair and legitimate. Moreover, friendly treatment of taxpayers by the tax office in auditing processes increases tax compliance.