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The use of third-party information reporting for tax deductions: evidence and implications from charitable deductions in Denmark

Author

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  • Christian Gillitzer
  • Peer Ebbesen Skov

Abstract

We show that the introduction of information reporting for charitable tax deductions in Denmark in 2008 was associated with a doubling in the number of deductions claimed, and a 15% rise in the total value of claims, which can be credibly attributed to previously unclaimed deductions. This contradicts the presumption that evasion is the main source of non-compliance for deductions, and that the use of information reporting raises revenue collections. A pre-reform randomized audit experiment did not detect the unclaimed deductions, implying audits overstate evasion relative to extensive-margin underreporting. Various tests suggest that compliance cost, passive choice and overwithholding suppressed self-reporting of deductions.

Suggested Citation

  • Christian Gillitzer & Peer Ebbesen Skov, 2018. "The use of third-party information reporting for tax deductions: evidence and implications from charitable deductions in Denmark," Oxford Economic Papers, Oxford University Press, vol. 70(3), pages 892-916.
    • Handle: RePEc:oup:oxecpp:v:70:y:2018:i:3:p:892-916.
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    File URL: http://hdl.handle.net/10.1093/oep/gpx055
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    More about this item

    JEL classification:

    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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