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The runaway taxpayer

Author

Listed:
  • Umberto Galmarini
  • Simone Pellegrino
  • Massimiliano Piacenza
  • Gilberto Turati

Abstract

In order to analyze the determinants of tax evasion, the existing literature on individual tax compliance typically takes a ‘prior-to-audit’ point of view. This paper focuses on a ‘post-audit, post-detection’—so far unexplored—framework, by investigating what happens after tax evasion has been discovered and noncompliant taxpayers are asked to pay their debts. We first develop a two-period dynamic model of individual choice, considering an individual that has been already audited and detected as tax evader, who knows that Tax Authorities are looking for her to cash the due amount. We derive the optimal decision of running away in order to avoid paying the bill, and show that the experience of a prior tax notice reduces the probability to behave as a scofflaw. We then exploit information on ‘post-audit, post-detection’ tax compliance provided by an Italian collection agency for the period 2004–2007 to empirically assess the relationship between prior tax notices and unlawful behavior. The evidence from alternative logit model specifications supports our theoretical prediction: successful tax notices are negatively correlated with the probability of running away. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Umberto Galmarini & Simone Pellegrino & Massimiliano Piacenza & Gilberto Turati, 2014. "The runaway taxpayer," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(3), pages 468-497, June.
  • Handle: RePEc:kap:itaxpf:v:21:y:2014:i:3:p:468-497
    DOI: 10.1007/s10797-013-9275-y
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax evasion; Tax collection; Post-audit tax enforcement; Tax notice; D81; H26; H30; K42;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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