In this paper we focus on the effects of investigations on tax compliance. In a very general model we explain the direct and indirect effects of investigations and analyse taxpayers’ response to an increase in the probability of audit when tax compliance is a social norm. We define the different elements that determine the impact of audits on compliance and show that if tax compliance is a social norm in the relevant community there is an additional effect arising because of social norm considerations. The behavioural response of taxpayers to an increase in the audit rate is stronger. Our Findings help explain seemingly contradictory results that emerge from the empirical evidence.
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Find related papers by JEL classification: D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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