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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.

Suggested Citation

  • Gemmell, Norman & Ratto, Marisa, 2012. "Behavioral Responses to Taxpayer Audits: Evidence From Random Taxpayer Inquiries," National Tax Journal, National Tax Association, 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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    1. Webley, Paul, 1987. "Audit probabilities and tax evasion in a business simulation," Economics Letters, Elsevier, vol. 25(3), pages 267-270.
    2. Jeffrey A. Dubin, 2007. "Criminal Investigation Enforcement Activities and Taxpayer Noncompliance," Public Finance Review, , vol. 35(4), pages 500-529, July.
    3. Mittone, Luigi, 2006. "Dynamic behaviour in tax evasion: An experimental approach," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(5), pages 813-835, October.
    4. Alm, James & Jackson, Betty R. & McKee, Michael, 2009. "Getting the word out: Enforcement information dissemination and compliance behavior," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 392-402, April.
    5. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association, vol. 58(4), pages 643-663, December.
    6. Maciejovsky, Boris & Kirchler, Erich & Schwarzenberger, Herbert, 2007. "Misperception of chance and loss repair: On the dynamics of tax compliance," Journal of Economic Psychology, Elsevier, vol. 28(6), pages 678-691, December.
    7. Youngse Kim, 2005. "Audit Misperception, Tax Compliance, and Optimal Uncertainty," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(3), pages 521-541, August.
    8. Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 297-312, July.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. 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.
    5. 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.

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