Does The Financial Situation affect Cheating Behavior? An Investigation through Financial Literacy

Using Dutch data from the LISS Panel, we study the effect of financial situation, love of money and general trust on multiple dimensions of individuals’ dishonesty, namely benefits fraud, tax evasion, fare evasion and stealing property. We use two indices of financial literacy as instruments to deal with the potential endogeneity of financial situation. The financial situation significantly affects the propensity to engage in cheating related to shadow-economy activities; conversely, small-scale dishonesty is mainly influenced by personal characteristics such as attitudes towards risk aversion. We show that love of money might eventually cloud individuals’ ethical behavior, as it increases the acceptability of immoral conduct. As expected, being trusting negatively affects the propensity to cheat, probably because it enhances individuals’ social cooperation. Our results are useful to deepen our knowledge about the factors affecting cheating behavior and, consequently, think of ways to limit it.