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We investigate within a controlled laboratory setting of a hypothetical tax system how tax knowledge aboutpublic expenditures and influence on budget spending affects tax compliance. To clearly disentangle any effectsfrom factors that are known to influence tax compliance from previous studies, we control for tax commitment,risk attitude, income and effort exerted to earn the income which the taxpayers report truthfully or underreport tothe tax authority. Non-parametric statistical analyses as well as multivariate regressions provide clear evidencethat tax compliance is higher in tax systems with low power of authorities when providing completetransparency on public expenditures and when taxpayers are given the possibility to decide on the use of theirtaxes. With a powerful tax authority in place which is reflected in high audit rates, compliance does not changewhen taxpayers know about the use of the taxes and even have control over the funds. Our results have importantpolicy implications as the mere hypothetical possibility to express preferences on budget spending influences taxcompliance.