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Tax compliance costs: a business administration perspective

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  • Eichfelder, Sebastian
  • Schorn, Michael
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    Abstract

    The paper analyses the relationship of tax compliance costs and business strategy. Due to instruments, like information technology, simplified cash accounting or outsourcing compliance activities to tax advisers, private businesses have a set of strategies to optimize their tax compliance cost burden. Under the assumption of rational choice a private business should choose a cost-optimal administration strategy. In spite of that we find empirical evidence for small German businesses using only insufficiently the support of external tax advisers. Therefore, a considerable number of small businesses in Germany could reduce their compliance cost burden by a higher degree of outsourcing tax processes. In contrast, we find no significant evidence for a cost reduction by an electronic data interchange with the tax and social insurance authorities or by a simplified cash accounting method for tax purposes. --

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    Bibliographic Info

    Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2009/3.

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    Date of creation: 2009
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    Handle: RePEc:zbw:fubsbe:20093

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    Related research

    Keywords: Tax complexity; tax compliance costs; bureaucracy costs; tax administration; administration strategy; business strategy; outsourcing; contracting out; e-filing; electronic data interchange; cash accounting;

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    References

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    1. Knud Jørgen Munk, 2005. "Tax-tariff reform with costs of tax administration," Economics Working Papers, School of Economics and Management, University of Aarhus 2005-21, School of Economics and Management, University of Aarhus.
    2. Louis Kaplow, 1995. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax," NBER Working Papers 5391, National Bureau of Economic Research, Inc.
    3. Guyton, John L. & O'Hare, John F. & Stavrianos, Michael P. & Toder, Eric J., 2003. "Estimating the Compliance Cost of the U.S. Individual Income Tax," National Tax Journal, National Tax Association, vol. 56(3), pages 673-88, September.
    4. Pitt, Mark M & Slemrod, Joel, 1989. "The Compliance Cost of Itemizing Deductions: Evidence from Individual Tax Returns," American Economic Review, American Economic Association, American Economic Association, vol. 79(5), pages 1224-32, December.
    5. Koellinger, Philipp & Minniti, Maria & Schade, Christian, 2007. ""I think I can, I think I can": Overconfidence and entrepreneurial behavior," Journal of Economic Psychology, Elsevier, Elsevier, vol. 28(4), pages 502-527, August.
    6. Kopczuk, Wojciech & Pop-Eleches, Cristian, 2007. "Electronic filing, tax preparers and participation in the Earned Income Tax Credit," Journal of Public Economics, Elsevier, Elsevier, vol. 91(7-8), pages 1351-1367, August.
    7. Kaplow, Louis, 1996. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of the Income Tax," National Tax Journal, National Tax Association, vol. 49(1), pages 135-50, March.
    8. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1287-94, September.
    9. Glaser, Markus & Weber, Martin, 2007. "Why inexperienced investors do not learn: They do not know their past portfolio performance," Sonderforschungsbereich 504 Publications, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim 07-70, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    10. Guyton, John L. & Korobow, Adam K. & Lee, Peter S. & Toder, Eric J., 2005. "The Effects of Tax Software and Paid Preparers on Compliance Costs," National Tax Journal, National Tax Association, vol. 58(3), pages 439-48, September.
    11. Glaser, Markus & Weber, Martin, 2007. "Why inexperienced investors do not learn: They do not know their past portfolio performance," Finance Research Letters, Elsevier, Elsevier, vol. 4(4), pages 203-216, December.
    12. Marsha Blumenthal & Joel Slemrod, 1995. "The compliance cost of taxing foreign-source income: Its magnitude, determinants, and policy implications," International Tax and Public Finance, Springer, Springer, vol. 2(1), pages 37-53, February.
    13. Tran-Nam, Binh & Evans, Chris & Walpole, Michael & Ritchie, Katherine, 2000. "Tax Compliance Costs: Research Methodology and Empirical Evidence from Australia," National Tax Journal, National Tax Association, vol. 53(n. 2), pages 229-52, June.
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    Cited by:
    1. Sebastian Eichfelder & Chantal Kegels, 2012. "Compliance costs caused by agency action? Empirical evidence and implications for tax compliance," Schumpeter Discussion Papers, Universitätsbibliothek Wuppertal, University Library sdp12005, Universitätsbibliothek Wuppertal, University Library.

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