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Audit State Dependent Taxpayer Compliance: Theory and Evidence from Colombia

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  • James Alm
  • James C. Cox
  • Vjollca Sadiraj

Abstract

Colombian tax reforms have been enacted with no estimates of taxpayer compliance responses to policy innovations. We report the results from the first tax compliance experiment run in Colombia. Our data analysis follows from an original dynamic theoretical model of individual compliance choice that is fully consistent with our experimental design and that should have useful applications to other tax compliance experiments. The model distinguishes between compliance conditional on no previous audits and compliance conditional on previous audits one and two periods earlier, which allows us to discriminate between the implications of naïve and static behavior versus sophisticated and forward-looking behavior in our subsequent empirical analysis. Our estimation results indicate that taxpayer reporting increases with an increase in the audit rate and an increase in the fine rate; we find no significant effects of the tax rate on compliance. We also find that compliance depends upon the use of tax payments; that is, taxpayer reporting is greater when aggregate tax payments are donated to a charity.

Suggested Citation

  • James Alm & James C. Cox & Vjollca Sadiraj, 2018. "Audit State Dependent Taxpayer Compliance: Theory and Evidence from Colombia," Experimental Economics Center Working Paper Series 2018-06, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Aug 2019.
    • Handle: RePEc:exc:wpaper:2018-06
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    More about this item

    Keywords

    Tax evasion; experimental economics;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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