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The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota

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Author Info
Marsha Blumenthal
Charles Christian
Joel Slemrod

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Abstract

This paper reports on the results of a controlled experiment in Minnesota in which a random sample of taxpayers was informed that their income tax returns would certainly be closely examined. We analyze reported income of this sample of taxpayers, reported income on their previous year's returns, and reported income from the two corresponding years' returns of a control group of taxpayers that did not receive the letter. We find that the treatment effect varies depending on the level of income. Low and middle income taxpayers increased reported income and tax liability relative to the control group, which we interpret as indicating the presence of noncompliance. The effect was much stronger for those with more opportunity' to evade, as measured by their source of income. However, the reported income of the high-income treatment group fell sharply relative to the control group. We suggest a model based on tax audits as a negotiation that can explain this apparently perverse result.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6575.

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Date of creation: May 1998
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Handle: RePEc:nbr:nberwo:6575

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Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jonathan S. Feinstein, 1991. "An Econometric Analysis of Income Tax Evasion and its Detection," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 14-35, Spring. [Downloadable!] (restricted)
  2. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
  3. Cremer, Helmuth & Gahvari, Firouz, 1994. " Tax Evasion, Concealment and the Optimal Linear Income Tax," Scandinavian Journal of Economics, Blackwell Publishing, vol. 96(2), pages 219-39.
  4. Heckman, James J & Smith, Jeffrey A, 1995. "Assessing the Case for Social Experiments," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 85-110, Spring. [Downloadable!] (restricted)
  5. Burtless, Gary, 1995. "The Case for Randomized Field Trials in Economic and Policy Research," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 63-84, Spring. [Downloadable!] (restricted)
  6. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August. [Downloadable!] (restricted)
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Cited by:
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  1. Kristina Murphy, 2007. "Procedural Justice and the Regulation of Tax Compliance Behaviour: The Moderating Role of Personal Norms," International Studies Program Working Paper Series, at AYSPS, GSU paper0731, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  2. Murphy, Kristina, 2008. "Enforcing Tax Compliance: To Punish or Persuade?," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(1), pages 113-135, March. [Downloadable!]
  3. Cathleen Johnson & David Masclet & Claude Montmarquette, 2008. "The Effect of Perfect Monitoring of Matched Income on Sales Tax Compliance: An Experimental Investigation," CIRANO Working Papers 2008s-17, CIRANO. [Downloadable!]
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