Social dynamics in tax compliance: The indirect Echo Effect of observing others’ tax behavior

This experimental study investigates the Echo Effect (Mittone, 2006) and extends its application to an intergenerational context. The Echo Effect refers to a behavioral pattern in which taxpayers develop persistent tendencies toward compliance or evasion based on their initial audit experiences. While Mittone (2006) focused on the impact of direct audit experiences, we explore whether the Echo Effect can also emerge indirectly: can observing the tax behavior of a previous group influence the compliance decisions of a subsequent one? We examine whether tax behavior formed by one generation under a particular enforcement regime affects the compliance behavior of the next generation, even when enforcement conditions change, and the new generation has no direct exposure to the original audit environment. Our findings provide clear evidence of an Indirect Echo Effect. When the first generation was infrequently audited and developed non-compliant behavior, the subsequent generation continued to evade taxes, even under much stricter enforcement. Conversely, when the first generation learned to comply under restrictive conditions, the following generation maintained cooperative behavior, even in the face of fewer audits, although the effect was less pronounced. These findings suggest that audit-induced compliance can reverberate across generations – particularly in the propagation of non-cooperative behaviors – highlighting the enduring and indirect influence of enforcement policies on taxpayer behavior.