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Do Individuals Comply on Income Not Reported by Their Employer?

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Author Info

  • James Alm

    (Georgia State University)

  • John Deskins

    (Creighton University)

  • Michael McKee

    (Appalachian State University)

Abstract

Individuals with income not reported to the tax authority by a third party (e.g., the self-employed, those earning tips) may be less likely to be detected evading taxes relative to the case in which their income is subject to third-party reporting. However, their compliance responses—to changes in the proportion of income that is reported to the tax authority, to changes in audit and tax rates, etc.—are largely unknown, in part because of the difficulty in obtaining information on individual choices in these situations. The authors use experimental methods to examine individual income tax compliance in settings where individuals differ in the portion of their income that is ``matched'' (reported to the tax authority via third-party information) versus ``nonmatched'' (not fully reported to the tax authority). The results indicate that individuals who have relatively more nonmatched income exhibit significantly lower tax compliance rates than individuals who earn relatively less nonmatched income.

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Bibliographic Info

Article provided by in its journal Public Finance Review.

Volume (Year): 37 (2009)
Issue (Month): 2 (March)
Pages: 120-141

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Handle: RePEc:sae:pubfin:v:37:y:2009:i:2:p:120-141

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Related research

Keywords: tax compliance; informal sector; experimental economics;

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Cited by:
  1. Heinemann, Friedrich & Kocher, Martin G., 2010. "Tax compliance under tax regime changes," ZEW Discussion Papers 10-020, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, Elsevier, vol. 40(C), pages 1-19.
  3. James Alm & Todd Cherry & Michael McKee & Michael L. Jones, 2010. "Investigating Behavioral Responses to Positive Inducements for Filing Tax Returns," Working Papers, Department of Economics, Appalachian State University 10-11, Department of Economics, Appalachian State University.

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