A recent study published in The Journal of Business Ethics by PSU Associate Professor Cass Hausserman and her co-authors examines how tax incentives for charitable donations impact both giving behavior and tax compliance. Their research challenges the idea of "moral licensing," which suggests that people who do good deeds—like donating to charity—might feel justified in behaving dishonestly elsewhere, such as cheating on their taxes.
Instead, Hausserman and her team found that people who donate to charity are actually more tax-compliant, even if they believe the tax system is unfair. The researchers conducted a multi-round online experiment with 309 U.S. taxpayers, where participants earned income and made two decisions in each round: whether to donate a portion to charity (Feeding America) and how much of their earnings to report for taxation. Some participants were eligible for a tax deduction on donations, while others were not, and in later rounds, the deduction was removed for all. The study measured how the tax incentive affected charitable giving, whether perceptions of fairness influenced tax compliance, and if donors engaged in moral licensing - justifying tax dishonesty.
“We expected to see some evidence of moral licensing, where people who donate might feel entitled to cheat a little on their taxes,” Hausserman explains. “But we didn’t find that at all. Instead, donors remained honest, regardless of how fair they thought the tax system was.”
The study also found that tax incentives work: people were more likely to donate when they received a tax deduction. However, when the incentive was removed, charitable giving dropped by about one-third. This suggests that tax policy can effectively encourage prosocial behavior, but there may be unintended consequences.
One key finding was how fairness perceptions influenced tax compliance. People who saw the tax system as unfair were more likely to be dishonest on their taxes—but only if they hadn’t donated to charity. Those who donated still complied with tax laws, even when they felt the system was unfair. “This tells us that engaging in prosocial behavior, like donating, reinforces a personal sense of ethics,” Hausserman says. “People don’t just ‘spend’ their good deed as an excuse to cheat. Instead, they tend to stay consistent in their ethical behavior.”
The study has important implications for policymakers. Hausserman suggests that tax authorities might improve compliance by focusing audits on non-donors, who were more likely to evade taxes. Additionally, lawmakers should be mindful of how tax incentives are structured, as perceptions of fairness can influence taxpayer behavior.
Overall, this research highlights that people’s ethical decisions are interconnected, and maintaining a fair and transparent tax system may help improve compliance.
This research was published in Journal of Business Ethics (2024) and was co authored with Donna Bobek (University of South Carolina) and Amy Hageman (Kansas State University)
If you would like a copy of this article, please contact Cass Hausserman at cass.hausserman@pdx.edu.