How Does Trust Affect Concessionary Behavior in Tax Bargaining?

We analyze the impact of trust on bargaining behavior between auditor and auditee in a tax setting. We study the effect of interpersonal trust and trust in government on both taxpayer and tax auditor. In an experiment with variation in pairwise trust settings, we find evidence that both kinds of trust affect the bargaining behavior, albeit in different ways. While trust in government increases taxpayers’ tax offers, trust in government may lead to more concessionary behavior of tax auditors moderated by interpersonal trust. Our findings help tax authorities to shape programs to enhance compliance in an atmosphere of trust.