Economics & Finance / Economic Theory / Public Economics

Are You Unwilling or Unable to Cheat? Shocking Tax Audit Experiment in Denmark Reveals the Truth

Henrik Kleven, Martin Knudsen, Claus Thustrup Kreiner, Soren Pedersen, Emmanuel Saez

This video dives into a groundbreaking study published in Econometrica by researchers Kleven, Knudsen, Kreiner, Pedersen, and Saez. They conducted a massive tax audit experiment in Denmark to answer a simple question: why don't people cheat more? The popular belief is that morality stops us, but the real reason might be simpler: we just can't. By analyzing over 40,000 taxpayers, the study found that income reported by third parties (like employers) has near-zero evasion, while self-reported income has evasion rates up to 17%. The key insight? It's not about being good—it's about being caught. Watch to discover how the design of tax systems, not personal ethics, determines compliance, and what this means for fighting tax evasion worldwide.