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Predictive analytics and the targeting of audits

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  • Hashimzade, Nigar
  • Myles, Gareth D.
  • Rablen, Matthew D.

Abstract

The literature on audit strategies has focused on random audits or on audits conditioned only on income declaration. In contrast, tax authorities employ the tools of predictive analytics to identify taxpayers for audit, with a range of variables used for conditioning. The paper explores the compliance and revenue consequences of the use of predictive analytics in an agent-based model that draws upon a behavioral approach to tax compliance. The taxpayers in the model form subjective beliefs about the probability of audit from social interaction, and are guided by a social custom that is developed from meeting other taxpayers. The belief and social custom feed into the occupational choice between employment and two forms of self-employment. It is shown that the use of predictive analytics yields a significant increase in revenue over a random audit strategy.

Suggested Citation

  • Hashimzade, Nigar & Myles, Gareth D. & Rablen, Matthew D., 2016. "Predictive analytics and the targeting of audits," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 130-145.
  • Handle: RePEc:eee:jeborg:v:124:y:2016:i:c:p:130-145
    DOI: 10.1016/j.jebo.2015.11.009
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    Cited by:

    1. Gamannossi degl’Innocenti, Duccio & Rablen, Matthew D., 2018. "Tax Evasion on a Social Network," IZA Discussion Papers 11535, Institute for the Study of Labor (IZA).
    2. Rosella Levaggi & Francesco Menoncin, 2015. "Dynamic Tax Evasion with Audits based on Conspicuous Consumption," Working papers 33, Società Italiana di Economia Pubblica.
    3. Duccio Gamannossi degl'Innocenti & Matthew D. Rablen, 2018. "Tax Evasion on a Social Network," CESifo Working Paper Series 7063, CESifo Group Munich.
    4. Duccio Gamannossi degl’Innocenti & Matthew D. Rablen, 2017. "Tax avoidance and optimal income tax enforcement," IFS Working Papers W17/08, Institute for Fiscal Studies.

    More about this item

    Keywords

    Tax compliance; Social network; Agent-based model;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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