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Behavioral Responses to Taxpayer Audits: Evidence From Random Taxpayer Inquiries

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  • Gemmell, Norman
  • Ratto, Marisa

Abstract

This paper argues that random audit programs provide income taxpayers with information that alters their perceptions of, and hence their behavioral responses to, audits. Comparing samples of randomly selected audited and non-audited UK taxpayers, the evidence confirms predictions that audited taxpayers found to be "compliant" reduce their subsequent compliance. The opposite response is observed for taxpayers found to be "noncompliant." The results highlight the importance of testing separately the responses of taxpayers facing different opportunities and incentives to evade tax in order to avoid conflating their different effects, and to reveal both positive and negative indirect revenue effects from random auditing.

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  • Gemmell, Norman & Ratto, Marisa, 2012. "Behavioral Responses to Taxpayer Audits: Evidence From Random Taxpayer Inquiries," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 33-57, March.
  • Handle: RePEc:ntj:journl:v:65:y:2012:i:1:p:33-57
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    References listed on IDEAS

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    Cited by:

    1. Marie Bjørneby & Annette Alstadsæter & Kjetil Telle, 2018. "Collusive Tax Evasion by Employers and Employees: Evidence from a Randomized Field Experiment in Norway," CESifo Working Paper Series 7381, CESifo.
    2. Pavel Semerad, 2015. "How to stop VAT frauds on the fuel market: a usual price rule," MENDELU Working Papers in Business and Economics 2015-54, Mendel University in Brno, Faculty of Business and Economics.
    3. Fábio Pereira Silva & Reinaldo Guerreiro & Eduardo Flores, 2019. "Voluntary versus enforced tax compliance: the slippery slope framework in the Brazilian context," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(2), pages 147-180, June.
    4. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    5. James Alm & Matthias Kasper, 2020. "Laboratory Experiments," Working Papers 2008, Tulane University, Department of Economics.
    6. Torsvik, Gaute & Raaum, Oddbjørn & Løyland, Knut & Øvrum, Arnstein, 2019. "Compliance effects of risk-based tax audits," OSF Preprints 6u3ns, Center for Open Science.
    7. Gabriele, Mazzolini & Laura, Pagani & Alessandro, Santoro, 2017. "The deterrence effect of real-world operational tax audits," Working Papers 359, University of Milano-Bicocca, Department of Economics, revised 03 Feb 2017.
    8. Jonathan Farrar & Steven E. Kaplan & Linda Thorne, 2019. "The Effect of Interactional Fairness and Detection on Taxpayers’ Compliance Intentions," Journal of Business Ethics, Springer, vol. 154(1), pages 167-180, January.
    9. 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.
    10. James Alm & Ali Enami & Michael McKee, 2020. "Who Responds? Disentangling the Effects of Audits on Individual Tax Compliance Behavior," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 48(2), pages 147-159, June.
    11. Andrew R. Finley, 2019. "The impact of large tax settlement favorability on firms’ subsequent tax avoidance," Review of Accounting Studies, Springer, vol. 24(1), pages 156-187, March.
    12. Sokolovskyi, Dmytro & Sokolovska, Olena, 2016. "Tax burden optimization on economic agents by modeling interaction in the taxation system," MPRA Paper 71110, University Library of Munich, Germany, revised 05 May 2016.
    13. Michael McKee & Caleb A. Siladke & Christian A. Vossler, 2018. "Behavioral dynamics of tax compliance when taxpayer assistance services are available," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 722-756, June.
    14. Sebastian Beer & Matthias Kasper & Erich Kirchler & Brian Erard, 2019. "Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers," IMF Working Papers 19/223, International Monetary Fund.
    15. Shafik Hebous & Zhiyang Jia & Knut Løyland & Thor Olav Thoresen & Arnstein Øvrum, 2020. "Do Audits Improve Future Tax Compliance in the Absence of Penalties? Evidence from Random Audits in Norway," CESifo Working Paper Series 8480, CESifo.
    16. Matti Viren, 2015. "Why so little revenues are obtained from a presumed large shadow economy?," Economics of Governance, Springer, vol. 16(2), pages 101-123, May.
    17. Feng Xiong & Shaojie Xiang & Peng Jin, 2019. "Study On Computational Experiments Of C2c Tax Compliance Based On Information Of Cybermediaries," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 22(02), pages 1-29, March.
    18. Laine, Tei & Silander, Tomi & Sakamoto, Kayo, 2020. "What distinguishes people who turn into tax evaders when properly incentivized from those who don’t? An experimental study using hypothetical scenarios," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 85(C).

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