Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark
AbstractThis paper analyzes a randomized tax enforcement experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, "threat-of-audit" letters were randomly assigned and sent to tax filers in both groups. Using comprehensive administrative tax data, we present four main findings. First, we find that the tax evasion rate is very small (0.3%) for income subject to third-party reporting, but substantial (37%) for self-reported income. Since 95% of all income is third-party reported, the overall evasion rate is very modest. Second, using bunching evidence around large and salient kink points of the nonlinear income tax schedule, we find that marginal tax rates have a positive impact on tax evasion, but that this effect is small in comparison to avoidance responses. Third, we find that prior audits substantially increase self-reported income, implying that individuals update their beliefs about detection probability based on experiencing an audit. Fourth, threat-of-audit letters also have a significant effect on self-reported income, and the size of this effect depends positively on the audit probability expressed in the letter. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported incomes.
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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15769.
Date of creation: Feb 2010
Date of revision:
Publication status: published as Kleven, Henrik, Martin Knudsen, Claus Kreiner, So ren Pedersen , and Emmanuel Saez “ U nwilling or Unable to Cheat? Evidence from a Tax Audit Experiment in Denmark ” , Econometrica 79(3), 2011, 651 - 692.
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-03-06 (Accounting & Auditing)
- NEP-ALL-2010-03-06 (All new papers)
- NEP-PBE-2010-03-06 (Public Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Sara LaLumia & James M. Sallee, 2011.
"The Value of Honesty: Empirical Estimates from the Case of the Missing Children,"
NBER Working Papers
17247, National Bureau of Economic Research, Inc.
- Sara LaLumia & James Sallee, 2013. "The value of honesty: empirical estimates from the case of the missing children," International Tax and Public Finance, Springer, Springer, vol. 20(2), pages 192-224, April.
- Sara LaLumia & James Sallee, 2011. "The Value of Honesty: Empirical Estimates from the Case of the Missing Children," Department of Economics Working Papers, Department of Economics, Williams College 2011-05, Department of Economics, Williams College.
- James Alm, 2012.
"Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies,"
International Tax and Public Finance, Springer,
Springer, vol. 19(1), pages 54-77, February.
- James Alm, 2012. "Measuring, Explaining, and Controlling Tax Evasion: Lessons from Theory, Experiments, and Field Studies," Working Papers, Tulane University, Department of Economics 1213, Tulane University, Department of Economics.
- James Alm, 2013. "Expanding the Theory of Tax Compliance from Individual to Group Motivations," Working Papers, Tulane University, Department of Economics 1309, Tulane University, Department of Economics.
- Barth, Erling & Cappelen, Alexander W. & Ognedal, Tone, 2013.
"Fair tax evasion,"
Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics
11/2013, Department of Economics, Norwegian School of Economics.
- Erling Barth & Alexander W. Cappelen & Tone Ognedal, 2013. "Fair Tax Evasion," Nordic Journal of Political Economy, Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 38, pages 3.
- Barth, Erling & Cappelen, Alexander W. & Ognedal, Tone, 2006. "Fair Tax Evasion," Memorandum, Oslo University, Department of Economics 07/2006, Oslo University, Department of Economics.
- repec:noj:journl:v:38:y:2013:p:3 is not listed on IDEAS
- Paul E. Carrillo & M. Shahe Emran & Gabriela Aparicio, 2011. "Taxes, Prisons, and CFOs: The Effects of Increased Punishment on Corporate Tax Compliance in Ecuador," Working Papers, The George Washington University, Institute for International Economic Policy 2011-02, The George Washington University, Institute for International Economic Policy.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.