The Dynamics of Internalised and Extrinsic Motivation in the Ethical Decision-Making of Small Business Owners

Author(s)

Diana Onu, Lynne Oats, Erico Kirchler

Abstract

We investigate the ethical behaviour of small business owners by focusing on individuals' motivations to comply with tax obligations. In a study of 330 small business owners, we assess the role of internalised motivation to pay taxes versus extrinsic motivation in driving tax compliance. First, we find that internalised and extrinsic motivation have distinct predictors. Internalised motivation is related to strong personal moral norms to comply and a sense that the fiscal system is fair. Extrinsic motivation is related to perceptions that penalties are severe, that checks are likely, and is associated with a perceived lack of tax knowledge. Second, we find that, when considered together, internalised motivation but not extrinsic motivation predicts self-reported tax compliance. Third, we test the undermining hypothesis by which the presence of extrinsic motivation may crowd out the positive effect of internalised motivation. We find evidence of a motivation crowding effect only at very high levels of extrinsic motivation. We discuss avenues for further integration of motivation theory in research on tax compliance behaviour, and more generally the study of regulatory compliance and ethical behaviour in business settings.

Organisation(s)

Department of Occupational, Economic and Social Psychology

External organisation(s)

University of Exeter

Journal

Applied Psychology: an international review

Volume

68

Pages

177–201

No. of pages

25

ISSN

0269-994X

DOI

https://doi.org/10.1111/apps.12151

Publication date

05-2018

Peer reviewed

Yes

Austrian Fields of Science 2012

501029 Economic psychology

Keywords

ASJC Scopus subject areas

Developmental and Educational Psychology, Arts and Humanities (miscellaneous), Applied Psychology

Portal url

https://ucrisportal.univie.ac.at/en/publications/a9c7f98b-844a-47d0-b5d3-23b128d30176