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Social programs as positive inducements for tax participation

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  • Alm, James
  • Cherry, Todd L.
  • Jones, Michael
  • McKee, Michael

Abstract

A significant amount of non-compliance with the personal income tax is due to individuals who have not filed a tax return and so who are not “in the system”. We use experimental laboratory methods to examine the effect of positive inducements for filing a tax return. Our design captures the essential features of a voluntary income reporting and tax assessment system: human participants earn income, they must decide whether to file a tax return, and, conditional upon filing, they must choose how much income to report. Taxes are paid on reported income only. Unreported income of filers may be discovered via a random audit, and the participant then pays owed taxes plus a fine. Inducements for filing are introduced as treatments: a social safety net (e.g., unemployment replacement income) that is conditional upon past filing behavior, and a tax credit that is available only to those who file. Our results suggest that an untargeted tax credit can encourage participation, but that targeting the credit to low income earners offers a stronger inducement to file. Also, the provision of a social safety net via unemployment benefits has a positive, albeit an indirect, impact on participation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 84 (2012)
Issue (Month): 1 ()
Pages: 85-96

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Handle: RePEc:eee:jeborg:v:84:y:2012:i:1:p:85-96

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Tax evasion; Tax compliance; Behavioral economics; Experimental economics;

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References

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  17. Cherry, Todd L. & Shogren, Jason F., 2008. "Self-interest, sympathy and the origin of endowments," Economics Letters, Elsevier, vol. 101(1), pages 69-72, October.
  18. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  19. Alm, James & McKee, Michael J. & Beck, William, 1990. "Amazing Grace: Tax Amnesties and Compliance," National Tax Journal, National Tax Association, vol. 43(1), pages 23-37, March.
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Cited by:
  1. Christian A. Vossler & Michael McKee, 2013. "Efficient tax reporting: The effects of taxpayer information services," Working Papers 13-24, Department of Economics, Appalachian State University.

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