A closer look at the relation between tax complexity and tax equity perceptions

Increasing compliance complexity is often blamed for increased non-compliance with the income tax, in part due to the negative impact complexity is assumed to have on taxpayers' equity perceptions. However, no strong theoretical basis has been offered to support a systematic relation between compliance complexity and equity perceptions, and empirical evidence regarding a relation between complexity and compliance is mixed. Relying on the social psychology and justice literatures, we develop hypotheses regarding the conditions under which tax complexity might be expected to impact equity perceptions. We conduct an experiment in which subjects assess different forms of a hypothetical tax provision with identical economic consequences. Consistent with our hypotheses, we find that the provision's complexity negatively affects equity assessments only when subjects are prompted with an alternative provision with relatively favorable economic consequences, and then only when no explicit justification for its complexity and relative economic consequences is offered. The contingent nature of the relation between complexity and equity perceptions, and its consequences for policy makers concerned with tax compliance, simplification, and more comprehensive tax reform, are discussed. (C) 2001 Elsevier Science B.V. All rights reserved.