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Tax Compliance Costs: A Business-Administration Perspective

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  • Sebastian Eichfelder
  • Michael Schorn

Abstract

Using instruments like information technology and paid preparation of tax returns, private taxpayers have a set of strategies to optimize their compliance cost burden. Assuming rational behavior, private businesses can be expected to choose a cost-optimal administration strategy. Nevertheless, we find empirical evidence of small German businesses, in particular, using external support to an insufficient extent. According to our results, doubling the proportion of outsourced compliance activities results in cost reductions of 14.4% to 24.9%. By contrast, we do not find significant evidence for a cost reduction due to an electronic data interchange with the tax and social insurance authorities or the use of a simplified cash accounting method. Therefore, our results give reason for doubt regarding potential cost reductions that could be reached by e-filing or cash-based accounting.

Suggested Citation

  • Sebastian Eichfelder & Michael Schorn, 2012. "Tax Compliance Costs: A Business-Administration Perspective," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 68(2), pages 191-230, June.
  • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201206)68:2_191:tccabp_2.0.tx_2-r
    DOI: 10.1628/001522108X639981
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    References listed on IDEAS

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    1. Blaufus, Kay & Eichfelder, Sebastian & Hundsdoerfer, Jochen, 2011. "The hidden burden of the income tax: Compliance costs of German individuals," Discussion Papers 2011/6, Free University Berlin, School of Business & Economics.
    2. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-1294, September.
    3. 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;International Institute of Public Finance, vol. 2(1), pages 37-53, February.
    4. Alm, James, 1996. "What Is an "Optimal'"Tax System?," National Tax Journal, National Tax Association, vol. 49(1), pages 117-33, March.
    5. Bankman, Joseph, 2008. "Using Technology to Simplify Individual Tax Filing," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(4), pages 773-789, December.
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    Citations

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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 & Kerstin Schneider, 2014. "Tax Incentives and Business Investment: Evidence from German Bonus Depreciation," CESifo Working Paper Series 4805, CESifo Group Munich.
    3. repec:eee:ijoais:v:23:y:2016:i:c:p:1-13 is not listed on IDEAS
    4. Eichfelder, Sebastian & Hechtner, Frank, 2016. "Tax compliance costs: Cost burden and cost reliability," arqus Discussion Papers in Quantitative Tax Research 212, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. 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.
    6. 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 complexity; tax compliance costs; tax advice; outsourcing; e-filing; cash accounting;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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