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

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  • Marsha Blumenthal
  • Charles Christian
  • Joel Slemrod

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.

Suggested Citation

  • Marsha Blumenthal & Charles Christian & Joel Slemrod, 1998. "The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota," NBER Working Papers 6575, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:6575
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    References listed on IDEAS

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    9. Dubin, Jeffrey A. & Wilde, Louis L., 1988. "An Empirical Analysis of Federal Income Tax Auditing and Compliance," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 61-74, March.
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    Citations

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    Cited by:

    1. Kristina Murphy, 2007. "Procedural Justice and the Regulation of Tax Compliance Behaviour: The Moderating Role of Personal Norms," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0731, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    2. Johnson, Cathleen & Masclet, David & Montmarquette, Claude, 2010. "The Effect of Perfect Monitoring of Matched Income on Sales Tax Compliance: An Experimental Investigation," National Tax Journal, National Tax Association;National Tax Journal, vol. 63(1), pages 121-148, March.
    3. John Obiora Anyaduba & Timothy Oboh, 2019. "Determinants of Tax Compliance Behaviour under the Self-Assessment Scheme in Nigeria," Accounting and Finance Research, Sciedu Press, vol. 8(2), pages 1-13, May.
    4. John Guyton & Patrick Langetieg & Daniel Reck & Max Risch & Gabriel Zucman, 2021. "Tax Evasion at the Top of the Income Distribution: Theory and Evidence," NBER Working Papers 28542, National Bureau of Economic Research, Inc.
    5. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    6. Colin C. Williams & Friedrich Schneider, 2016. "Measuring the Global Shadow Economy," Books, Edward Elgar Publishing, number 16551.
    7. Bruce, Donald, 2002. "Taxes and Entrepreneurial Endurance: Evidence from the Self-Employed," National Tax Journal, National Tax Association, vol. 55(N. 1), pages 5-24, March.
    8. Bruce, Donald, 2000. "Effects of the United States tax system on transitions into self-employment," Labour Economics, Elsevier, vol. 7(5), pages 545-574, September.

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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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