A Structural Equation Model for Tax Compliance and Auditing
AbstractIn this paper. we estimate a three equation model for taxpayers' reported income and tax liability and for the probability of an audit. Our work differs from previous studies in that our dependent variables in the compliance equations are taxpayer reports rather than a variable related to auditor estimates of noncompliance and in that we estimate a structural equation for audits. We find that audits stimulate compliance although the effect is not large and is not statistically significant for all groups. Audits are more effective at inducing accurate reporting of subtractions from income than of income. Reduced-form results suggest that IRS activities other than audits have significant compliance effects. Results for the sociodemographic variables are interesting and help to explain some seemingly incongruous findings in the literature. We find compliance to be higher, if anything. in areas with less educated and older taxpayers, a large proportion of households headed by females. and a mostly native born population.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2556.
Date of creation: Mar 1988
Date of revision:
Publication status: published as "The Effect of Audits and Socio-Economic Variables on Tax Compliance," in Joel Slemrod, editor. Tax Compliance and Tax Law Enforcement. Ann Arbor: University of Michigan Press, 1992
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
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