Taxation: an ideal subject for teaching ethics?
In this article, Peter Daly and Emmanuelle Deglaire (EDHEC) presents the "serious tax game" they've put in place aimed at students. Based on the practices of behavioural economics (1), its ethical implications become apparent very quickly, at the heart of a comprehensive educational activity...
“We do not learn from experience,
we learn from reflecting on experience”
Dewey (1936)
Some would say that ethics cannot be taught, that it is a matter of know-how or personal conduct. The opposite view is to regard ethics as the art and skill of making the right choices. And just as every artist can improve by honing their technique, so every student should be given the opportunity to develop their ability to make more informed choices (2).
Ask a student whether they think they will be an honest taxpayer. The vast majority of students will answer ‘yes’. But why? Out of respect for the norm? Out of fear of judgement? Out of ignorance of the homo economicus that lies dormant within them? Often, they do not know. Thus, before any theoretical teaching of taxation (or, more precisely, tax law, as lawyers would say) it can be particularly educational to introduce students to the subject by giving them a broader perspective through an experiential activity.
This is what we offer every year to hundreds of students at EDHEC Business School: a tax simulation, one might call it a ‘serious tax game’, inspired by the practices of behavioural economics and redesigned for educational purposes (1).
Learning through experience: Kolb’s cycle applied to tax compliance
The fundamental idea behind behavioural economics, which runs counter to more traditional economic theory, is that the best theory is one based on the observation of actual behaviour. Rather than assuming economic agents will behave in a particular way, we should observe how they actually behave.
In educational science, this idea of experimentation was theorised by Kolb through the four stages of the experiential learning cycle (3).
Applied to tax compliance, abstract conceptualisation (AC) corresponds to one’s general attitude towards tax, i.e. one’s beliefs and knowledge of tax rules, whilst concrete experience (CE) refers to being placed in a situation where one must make decisions regarding tax compliance. Reflective observation (RO) involves observing the behaviour of other taxpayers in relation to these obligations and observing the consequences of one’s own behaviour as well as the consequences of others’ tax behaviour. Finally, active experimentation (AE) involves putting what has been learnt into practice and adjusting behaviour in light of the consequences (experienced individually or collectively) of tax compliance or non-compliance.
A 5-player game simulating tax decision-making: rules and mechanics
The experiment takes place in a classroom; students log into the interface via their mobile phones, and the system assigns them to different groups of five participants.
In each group, one student (A) plays the role of the public decision-maker and chooses a tax rate between 0 and 50 per cent. They receive no points for this. Two students play role B and two students play role C, which are not distinguished at this stage, i.e. the role of a taxpayer, who receives income points and must declare (or not) their income in the app, so that the system can determine the amount of tax to be paid to A.
The probability of an audit is set by the lecturer (here, a one-in-ten chance), as is the amount of the penalty (the tax multiplied by 3). The system then applies a multiplier (arbitrarily set at 1.7) and awards additional points: for every tax point generated by honestly declared income, A receives 1.7 points, thereby increasing their capacity for redistribution … or personal enrichment. Finally, in the event of large-scale tax evasion, if Player A fails to accumulate at least 100 points, the system goes bankrupt: Students B and C lose the points allocated to them for that round, and Student A receives no tax revenue.
Over the course of six rounds, the students will play the game, testing high rates, low rates, and experimenting with fraud and honesty. They are free to make their own decisions within the game and to discuss matters in person with their classmates, who may be assigned to a different universe, in order to compare the dynamics, they observe in their respective universes.
After the six rounds, a second set of rounds begins with a significant variation: participants B are given the option to choose the universe in which they wish to play.
Presented in the form of a simple game, without any specific tax explanations, the students are invited to practise taxation, observe it, understand it and choose their actions for the next round.
The importance of an open group discussion
Once the first 12 rounds are complete, it is time for a class discussion to collectively analyse what they have just experienced, with the teacher providing additional insights into tax techniques. The approach is purely Socratic.
The teacher must not give anything away but must allow the students to make progress through simple questioning.
“Who has experienced a tax audit? How did you find it? What impact did it have on your behaviour in the next round?” The questions are asked one by one, and students who volunteer speak up to share their emotions, strategies, surprises and questions about the game.
The simulation’s parameters are then discussed. “If the audit rate had been 1 in 2 rather than 1 in 10, would your behaviour have been different? And did the threefold penalty have an impact on your decision-making? And if your grandmother could have been watching you, would you have acted differently?” The concepts of intrinsic and extrinsic motivation are explored here, as are adherence to social norms and the notion of individual economic interest.
After the game comes reality: applying the simulated experience to French tax practice
The professor then draws a parallel with the reality of the French tax system: the penalty amounts to 80 per cent in cases of bad faith on the part of the taxpayer. The risk of an audit, however, is in practice rather poorly understood and depends on a multitude of factors specific to the taxpayer (company, individual, taxpayer who has previously been subject to tax reassessment, etc.) and to the organisation of the tax authorities themselves.
In France, the chosen strategy is not to increase the number of audits, as two other approaches have been deemed more effective:
- The first is the pre-filled tax return, which involves obtaining information directly from the source such as from employers or from banks for investment income, thereby removing any need for the ordinary taxpayer to face ethical dilemmas.
- The second involves better targeting audits using artificial intelligence and machine learning (4): auditors are directed towards taxpayers whose tax audits are likely to be more ‘promising’, thereby increasing efficiency.
The impact of this technical information is amplified when it is shared with students who have just experienced a tax audit or witnessed the tax audit of one of their fellow students in the game. This embodies the experiential dimension of the pedagogical approach theorised by Kolb.
Sometimes, a single intervention can lead to significant progress: “My Player A wasn’t redistributing anything at all. So, I had no choice but not to file a tax return!”. The discussion then turns to the real-world reality of this situation observed in the simulation. Is it possible to have a state that redistributes nothing (or so little)? This may indeed be the case with corrupt and/or poorly managed states.
Similarly, the simulation includes a scenario involving bankruptcy. The individual consequences for citizens of their state’s bankruptcy are then discussed, namely, asset freezes; job cuts; reductions in civil servants’ salaries; cuts to public health; or education services.
Tax evasion: the consequences of moving abroad
Once the students have experienced the system over six rounds, a variation is introduced into the simulation for the following six rounds. As mentioned, participants in Group B are then allowed to choose the scenario in which they wish to play. Participants in Group C, however, remain in the initial game mode.
During these six rounds, the students are thus invited to explore tax competition between states. Quite naively, at this stage, a student usually asks: ‘If my Group B players leave, will the system generate new Group B players for me in my universe?’
Within two sets of rounds, the stakes are understood and a fall in tax rates is observed. A players realise that they can no longer afford exorbitant rates without risking the displeasure of taxpayers who are no longer captive. And the frustration felt by C players is also very quickly apparent, fuelling a rich debate amongst the participants.
Faced with the exodus of B Players, most students equate the role of C Players in the simulation with that of ordinary individuals, whilst B Players are seen as businesses, free to cross borders. The reality is more complex: some local businesses cannot actually relocate without losing their customer base, whilst certain well-off or highly qualified individuals are more easily mobile.
Very quickly, however, the game’s parameters bring the more daring players back down to earth. Indeed, it is impossible to reach the minimum threshold of 100 in tax collected when the tax rate has been set too low by an over-ambitious A Player. The trap of the mirage of a tax El Dorado snaps shut on the naive players, who lose all their points for the round when their economy goes bankrupt.
Kolb’s learning cycle is perfectly illustrated here. Act, observe, reflect, decide.
In this specific part of the simulation, the action involves:
- for Group A: reducing tax rates,
- for Group B: moving abroad, and
- for Group C: experiencing the frustration of their inability to act.
Collective observation then focuses on the downward trend in tax rates and the increasing number of bankrupt universes. Each student, at their own level but also through discussion with their classmates, is invited to reflect on the scenario they have just experienced collectively. The final stage involves each student, individually and freely, deciding how they will behave in the next round.
Research shows that this simulation has an impact. Students’ attitudes towards taxation, as assessed before the experiment, change after the experiment.
The teaching approach is by no means prescriptive: “You must declare your taxes honestly!”. The approach is deeper and more nuanced: it is not about simply obeying a rule because it is the rule, but about taking ownership of it . Students must understand its foundations, objectives and practical consequences and when faced with the variety of situations that may arise, they learn how to make informed choices. The aim is to guide students towards ‘full tax awareness’, encompassing its legal, economic, psychological and social dimensions.
References
(1) Peter Daly, Emmanuelle Deglaire, 2026. "Gaming the Tax to Enable Students to Learn About Tax Ethics", in Advances in Taxation (Emerald Publising, Volume 32). Doi: https://doi.org/10.1108/S1058-749720260000032007
(2) Lacroix, A., Marchildon, A., & Bégin, L. (2017). Former à l'éthique en organisation: une approche pragmatiste. PUQ - https://www.puq.ca/catalogue/livres/former-ethique-organisation-3092.html
(3) Kolb, D. A. (1984). Experiential Learning: Experience as the source of learning and development. US: Prentice Hall - https://www.researchgate.net/publication/235701029_Experiential_Learning_Experience_As_The_Source_Of_Learning_And_Development
