What distinguishes people who turn into tax evaders when properly incentivized from those who don’t? An experimental study using hypothetical scenarios

•This article explores the role of risk and costs in decisions to deceive.•Three distinct types of people found based on their deceptive behaviors.•Types differ in their general lie and risk attitudes but not in numeracy skills.•Types differ in deception rate, sensitivity to risk and advantage gained by deceiving.•Different models best explain the behavior of types in different conditions. We were interested in the factors that influence deceptive behavior, especially if strong incentives can make people overcome their aversion to lying. We ran an online experiment in which participants made choices between deceptive and non-deceptive actions in hypothetical scenarios of reporting their income to tax authorities. The participants could lie in their tax report in order to receive a larger tax refund or to pay less additional taxes. In some scenarios they could face a tax penalty if their report was found to be in error. While a large number of participants never deceived when it was risky and potentially costly, the rate of deception almost doubled in conditions with no detection risk or penalty. However, not all participants responded equally to the absence of risk and detection penalty (incentives). We were able to identify three types of behaviors that were related to participants’ general risk and lie attitudes, but not to their numeracy skills or risk literacy. These three types of participants also differed in their deception rate and sensitivity to changes in incentives in different conditions varying either risk of getting caught or expected advantage gained by deceiving.