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Deterrence Effects of Auditing Rules: An Experimental Study

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  • Tan, Fangfang
  • Yim, Andrew

Abstract

This paper examines the deterrence effect of two auditing rules via a laboratory experiment. A traditional rule which is usually assumed in the auditing literature, audits a taxpayer with a constant probability, which is independent of others' tax returns. A bounded rule recently proposed and analyzed in the literature chooses a sample from the population of reported low-income taxpayers to audit, taking into account the capacity of the auditor. We �find that the deterrence effect of a bounded rule is as strong as that of a traditional rule, but is more cost-effective since fewer audits are conducted. The results lend further support to the bounded rule as a more cost-effective alternative to the traditional rule.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27859.

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Date of creation: 17 Sep 2010
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Handle: RePEc:pra:mprapa:27859

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Keywords: Audit sampling plan; tax audit; tax compliance; tax evasion; experimental economics.;

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