between Penalty and Revenue States is significant (p = .003). Panel C of Table 2 demonstrates that
the sanction treatment is more instrumental in enhancing compliance among firms experiencing
declining gross revenues (means: No Penalty 7.683, Penalty 8.590). The mean reported use tax
base for these firms increased from $2,171 to $5,377, an increase of almost 150 percent. Firms
reporting increasing revenues, on the other hand, exhibit insignificant differences in tax bases
reported (means: No Penalty 8.704, Penalty 8.395). The declining firms receiving the sanction
information behaved more in accordance with those firms in the increasing revenues category.
Thus, while the sanction manipulation was not effective among all firms, it did significantly
influence construction firms with declining revenue states, as hypothesized by H4.
Note that H2 and H3 are not supported because of the conditional effect of sanctions manipulation
(penalty). The sanctions manipulation works to mitigate the temptation of potential evaders.
That is, firms that have declining revenues (potential evaders) when presented with penalty information,
tend to evade less than when not presented with penalty information. Since firms that have
increasing revenues are much less likely to be potential evaders, the sanctions manipulation has
little to no effect on them (see Figure 1).