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The Effect Of Perfect Monitoring Of Matched Income On Sales Tax Compliance: An Experimental Investigation

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  • Johnson, Cathleen
  • Masclet, David
  • Montmarquette, Claude

Abstract

Tax noncompliance is a quantitatively important phenomenon that significantly affects government revenues, and thus raises challenging questions about the determinants of tax reporting and the appropriate design of a tax system. This paper provides empirical insights regarding the nature of tax noncompliance, using an experimental approach to evaluate the effects of systematic sales tax monitoring and identify the determinants of sales tax compliance. The results suggest that if perfect monitoring of a single revenue source is introduced without other complementary policies, an increase in tax revenues is not the likely outcome as evasion increases for other revenue sources. That is, the data suggest that once taxpayers have chosen their level of tax compliance, they will try to recover their losses following any policy changes, even if it implies assuming more risks.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 63 (2010)
Issue (Month): 1 (March)
Pages: 121-48

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Handle: RePEc:ntj:journl:v:63:y:2010:i:1:p:121-48

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Alm, James & Blackwell, Calvin & McKee, Michael, 2004. "Audit Selection and Firm Compliance with a Broad-based Sales Tax," National Tax Journal, National Tax Association, National Tax Association, vol. 57(2), pages 209-27, June.
  3. Dubin, Jeffrey A. & Graetz, Michael J. & Wilde, Louis L., 1990. "The Effect of Audit Rates on the Federal Individual Income Tax, 1977-1986," National Tax Journal, National Tax Association, National Tax Association, vol. 43(4), pages 395-409, December.
  4. C. Cadsby & Elizabeth Maynes & Viswanath Trivedi, 2006. "Tax compliance and obedience to authority at home and in the lab: A new experimental approach," Experimental Economics, Springer, Springer, vol. 9(4), pages 343-359, December.
  5. Gerxhani, Klarita & Schram, Arthur, 2006. "Tax evasion and income source: A comparative experimental study," Journal of Economic Psychology, Elsevier, Elsevier, vol. 27(3), pages 402-422, June.
  6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 323-338, November.
  7. Marsha Blumenthal & Charles Christian & Joel Slemrod, 1998. "The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota," NBER Working Papers 6575, National Bureau of Economic Research, Inc.
  8. Bernard Fortin & Gaétan Garneau & Guy Lacroix & Thomas Lemieux & Claude Montmarquette, 1996. "L'économie souterraine au Québec : Mythes et réalités," CIRANO Monographs, CIRANO, CIRANO, number 1996mo-01, May.
  9. Erard, Brian & Ho, Chih-Chin, 2001. "Searching for ghosts: who are the nonfilers and how much tax do they owe?," Journal of Public Economics, Elsevier, Elsevier, vol. 81(1), pages 25-50, July.
  10. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
  11. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, National Tax Association, vol. 45(1), pages 107-14, March.
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Cited by:
  1. Gonzalez, Fidel & Leipnik, Mark & Mazumder, Diya, 2013. "How much are urban residents in Mexico willing to pay for cleaner air?," Environment and Development Economics, Cambridge University Press, Cambridge University Press, vol. 18(03), pages 354-379, June.
  2. Telle, Kjetil, 2013. "Monitoring and enforcement of environmental regulations," Journal of Public Economics, Elsevier, Elsevier, vol. 99(C), pages 24-34.
  3. Kjetil Telle, 2012. "Monitoring and enforcement of environmental regulations. Lessons from a natural field experiment in Norway," Discussion Papers, Research Department of Statistics Norway 680, Research Department of Statistics Norway.

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