Can Ethics and Economic Incentives Mitigate Tax Preparers' Aggressive Judgments and Decisions?

We examine whether the personal attribute of ethics and an external economic incentive in the form of a standard tax preparation fee can mitigate tax preparers’ aggressive tax reporting behavior. Based on the results of a quasi-experiment involving tax preparers in Korea, we find that ethical attributes both directly and indirectly mitigate aggressive tax reporting by reducing tax preparers’ fear of client dissatisfaction. We then find that the introduction of a standard tax preparation fee does not directly or indirectly suppress the tax aggressiveness of tax preparers. Despite the lack of a significant impact of the standard fee, our descriptive evidence implicitly supports the potential impact of such a fee on less ethical tax preparers. Therefore, governments and policy makers should continue developing effective external mechanisms to enhance tax preparer compliance