An Experimental Study of Taxpayer Compliance Behavior Under Alternative Reporting Regimes
AbstractUnderreporting of income is a costly problem for the government and for those people who do pay their taxes, due to the necessity of higher tax burdens to sustain a given amount of revenue. An extensive research report published by the IRS this year estimates that in the United States in 2006 the “tax gap” between paid taxes and legally owed taxes was $450 billion, which means 16.9 percent of total tax liabilities were evaded that year (Black et al., 2012). The IRS recovered $65 billion from late payments and audits, but that still left 14.5 percent noncompliance. Breaking the tax gap down into finer categories, the IRS finds that the vast majority (84 percent) comes from underreporting of income, most of that (62.5 percent) comes from individual income taxes, and most of that (52 percent) is small business proprietor’s income. This totals to 27 percent of noncompliance due to underreporting of individual proprietor income. It is estimated that 57 percent of business income is not reported (Black et al., 2012). Wages make up a small fraction of underreporting, mostly due to the fact that firms must report employee income directly to the IRS, and withholding is common, so a relatively disinterested third party makes the decision of how much income is reported (Slemrod, 2008). Slemrod emphasizes the importance of enforcement in compliance behavior, citing the fact that income subject to withholding and substantial information reporting (wages) has a 1 percent noncompliance rate, compared to 56 percent noncompliance for income with little or no information reporting requirements. Given the difficulty of identifying cheaters and the cost of increasing the rate of auditing, a better understanding of the determinants of noncompliance is needed 1 to reduce the magnitude of tax cheating. To address a part of the tax evasion quandary, Kalambokidis et al. (2012) conducted a laboratory experiment1 which was designed to examine the feasibility of using the choice between a high-burden,2 low-transparency and a low-burden, high-transparency tax regime, as a mechanism to separate out those who have higher and lower propensities to cheat when reporting their income. The results are the subject of this paper.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Minnesota, Department of Applied Economics in its series Master's Theses with number 127192.
Date of creation: Jul 2012
Date of revision:
Contact details of provider:
Postal: 231ClaOff Building, 1994 Buford Avenue, St. Paul, MN 55108-6040
Phone: (612) 625-1222
Fax: (612) 625-6245
Web page: http://www.apec.umn.edu
More information through EDIRC
Financial Economics; Institutional and Behavioral Economics; Public Economics;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2012-07-23 (Accounting & Auditing)
- NEP-ALL-2012-07-23 (All new papers)
- NEP-EXP-2012-07-23 (Experimental Economics)
- NEP-IUE-2012-07-23 (Informal & Underground Economics)
- NEP-PBE-2012-07-23 (Public Economics)
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.