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Minimising Selection Failure and Measuring Tax Gap: An Empirical Model

Author

Listed:
  • Kumar, Sudhanshu

    (National Institute of Public Finance and Policy)

  • Rao, R. Kavita

    (National Institute of Public Finance and Policy)

Abstract

This paper presents an empirical model for minimising selection failure by tax departments in selecting cases for scrutiny assessment. This model also provides a new methodology for estimating tax gap from limited information that the department collects on a regular basis through scrutiny assessments. Using a maximum-likelihood procedure that corrects for sample selection bias, and the data on the scrutiny assessment exercise carried out by the income tax department, we estimate the model which relates the probability and extent of under-reporting to various inputs provided by the tax filer. The estimated model provides a mechanism to analyse the trade-off between two types of cases of failure - wrong selection of a case and failure to take up the potential underreporter.

Suggested Citation

  • Kumar, Sudhanshu & Rao, R. Kavita, 2015. "Minimising Selection Failure and Measuring Tax Gap: An Empirical Model," Working Papers 15/150, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:15/150
    Note: Working Paper 150, 2015
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    File URL: http://www.nipfp.org.in/media/medialibrary/2015/05/WP_2015_150.pdf
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    Citations

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    Cited by:

    1. Giovanna Tagliaferri & Daria Scacciatelli & Pierfrancesco Alaimo Di Loro, 2019. "VAT tax gap prediction: a 2-steps Gradient Boosting approach," Papers 1912.03781, arXiv.org, revised Jun 2020.
    2. Pierfrancesco Alaimo Di Loro & Daria Scacciatelli & Giovanna Tagliaferri, 2023. "2-step Gradient Boosting approach to selectivity bias correction in tax audit: an application to the VAT gap in Italy," Statistical Methods & Applications, Springer;Società Italiana di Statistica, vol. 32(1), pages 237-270, March.
    3. Runu Bhatka, 2016. "Educational Attainment of Young Adults in India: Measures, Trends and Determinants," Working Papers id:8435, eSocialSciences.
    4. Kausik K. Bhadra, 2016. "Inequality Effects of Fiscal Policy: Analysing the Benefit Incidence on Health Sector in India," Working Papers id:8433, eSocialSciences.

    More about this item

    Keywords

    Selection Failure ; Tax Gap;

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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