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Audit Lags and Taxpayer Compliance: A Simple Intertemporal Model

Author

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  • Joseph G. Eisenhauer

    (Canisius College)

Abstract

Conventional analyses of taxpayer behavior predict that individuals will fulfill their tax obligations completely if and only if the expected net gain from tax evasion is zero or negative. In practice, however, taxpayers commonly pay their full taxes despite what appears to be a strong financial incentive for noncompliance. A simple intertemporal model based on audit lags helps to resolve the discrepancy between theory and practice by showing that full compliance may indeed be utility maximizing despite the expectation of positive net gains from evasion, depending upon the taxpayer’s future income, propensity for saving, and degree of risk aversion.

Suggested Citation

  • Joseph G. Eisenhauer, 2006. "Audit Lags and Taxpayer Compliance: A Simple Intertemporal Model," Journal of Economic Insight (formerly the Journal of Economics (MVEA)), Missouri Valley Economic Association, vol. 32(2), pages 45-59.
  • Handle: RePEc:mve:journl:v:32:y:2006:i:2:p:45-59
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    Cited by:

    1. Muehlbacher, Stephan & Mittone, Luigi & Kastlunger, Barbara & Kirchler, Erich, 2012. "Uncertainty resolution in tax experiments: Why waiting for an audit increases compliance," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(3), pages 289-291.

    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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