The Theoretical Framework Of An Organization

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This section discusses the theoretical framework used in the study. It covers the problem statement, purpose statement and the research questions. The philosophical foundation of this study is also presented. Theoretical Framework The standard economic framework by Allingham and Sandmo (1972) and the expected utility theory suggest that higher audit probabilities and higher tax fines discourage cheating of taxes (Adreoni, Erard & Feinstein, 1998; Kleven et al., 2011; Maciejovsky, Schwarzenberger, & Kirchler, 2012). People normally evaluate the costs and the benefits of a certain course of action before making a decision. In an attempt to minimize the tax burdens, taxpayers weigh the utility benefits of avoiding or evading taxes successfully and the utility costs associated with the risk of probable detection and punishment (Maciejovsky, Schwarzenberger, & Kirchler, 2012). Thus, taxpayers are becoming wary in their tax compliance for every business activity as the government is shifting its focus on recovering its lost revenues from the evaders. The expected utility does not only involve the outcomes measurable by money such as probable gains and losses. Economists assume that the expected utility concept is not linearly related to the monetary value (Casey & Scholz, 1991). It may include “nonmonetary concerns such as the social stigma and guilt that may be associated with illegal acts or with getting caught” (Casey & Scholz, 1991, p. 824). In this light,
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