Ambiguity about Audit Probability, Tax Compliance, and Taxpayer Welfare
AbstractWe show that an increase in uncertainty about the probability of being audited (ambiguity) increases tax compliance for ambiguity-averse taxpayers but reduces compliance for ambiguity lovers. Because experimental evidence reveals considerable heterogeneity with respect to ambiguity preferences, we conclude that fostering uncertainty about the probability of being audited may not be an effective policy for increasing taxpayer compliance. Moreover, because the tax authority can neither categorize nor screen taxpayers on the basis of their preferences for ambiguity, it is not likely to be either a useful or a desirable instrument for increasing taxpayer welfare. (JEL H26, D81) Copyright 2005, Oxford University Press.
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Bibliographic InfoArticle provided by Western Economic Association International in its journal Economic Inquiry.
Volume (Year): 43 (2005)
Issue (Month): 4 (October)
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- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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