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Compliance costs caused by agency action? Empirical evidence and implications for tax compliance

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  • Eichfelder, Sebastian
  • Kegels, Chantal

Abstract

Compliance costs of taxpayers should not only be affected by the tax law itself but also by its implementation through the tax authorities. In this paper we analyze the effect of authority behavior on the burden of complying with tax regulations. Using survey data of Belgian businesses, we develop an estimation strategy to overcome simultaneity bias by the construction of proxy variables. According to our estimate, a customer-unfriendly tax administration increases the average compliance burden by about 27%. Our outcome has interesting implications for further research. First of all, authority behavior does not only affect “soft” tax compliance factors like fairness and trust, but also “hard” aspects like costs. Second, the distribution of administrative cost burdens between the taxpayer side and the authorities may be important regarding the cost-efficiency of the tax system as a whole.

Suggested Citation

  • Eichfelder, Sebastian & Kegels, Chantal, 2014. "Compliance costs caused by agency action? Empirical evidence and implications for tax compliance," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 200-219.
  • Handle: RePEc:eee:joepsy:v:40:y:2014:i:c:p:200-219
    DOI: 10.1016/j.joep.2012.08.012
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    References listed on IDEAS

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    Cited by:

    1. Eichfelder, Sebastian & Vaillancourt, François, 2014. "Tax compliance costs: A review of cost burdens and cost structures," arqus Discussion Papers in Quantitative Tax Research 178, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Sebastian Eichfelder & François Vaillancourt, 2014. "Tax Compliance Costs: A Review of Cost Burdens and Cost Structures," Hacienda Pública Española, IEF, vol. 210(3), pages 111-148, September.

    More about this item

    Keywords

    Tax compliance costs; Red tape; Tax administration; Tax compliance; Tax evasion; Tax authority behavior; Proxy variables; Simultaneity bias;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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