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Tax Complexity: Problem or Opportunity?

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  • Kate Krause

    (University of New Mexico)

Abstract

When laws are complex or ambiguous, compliance and enforcement suffer. In the United States, the federal income tax is a familiar example of this. Often, neither the taxpayer nor the Internal Revenue Service (IRS) can perfectly determine a taxpayer's true tax liability. Uncertainty, ignorance, and burdensome documentation requirements deter some taxpayers from taking advantage of legitimate deductions and credits, whereas others find opportunities for creative tax avoidance in ambiguous provisions. Complexity undermines the IRS's ability to distinguish among intentional evasion, honest misinterpretation of the tax code, and legitimate tax avoidance. This model shows that the IRS cannot always profitably exploit complexity.

Suggested Citation

  • Kate Krause, 2000. "Tax Complexity: Problem or Opportunity?," Public Finance Review, , vol. 28(5), pages 395-414, September.
  • Handle: RePEc:sae:pubfin:v:28:y:2000:i:5:p:395-414
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    Cited by:

    1. Torgler, Benno & Demir, Ihsan C. & Macintyre, Alison & Schaffner, Markus, 2008. "Causes and Consequences of Tax Morale: An Empirical Investigation," Economic Analysis and Policy, Elsevier, vol. 38(2), pages 313-339, September.
    2. Christian A. Vossler & Michael McKee, 2017. "Efficient Tax Reporting: The Effects Of Taxpayer Liability Information Services," Economic Inquiry, Western Economic Association International, vol. 55(2), pages 920-940, April.
    3. David Bruner & Michael Jones & Michael McKee & Christian Vossler, 2015. "Tax Reporting Behavior: Underreporting Opportunities and Prepopulated Tax Returns," Working Papers 15-11, Department of Economics, Appalachian State University.
    4. Kühne, Daniela, 2020. "Reaction to ambiguity as a signal for tax reporting aggressiveness: Evidence from German income tax return data," Passauer Diskussionspapiere, Betriebswirtschaftliche Reihe B-44-20, University of Passau, Faculty of Business and Economics.
    5. Pántya, József & Kovács, Judit & Kogler, Christoph & Kirchler, Erich, 2016. "Work performance and tax compliance in flat and progressive tax systems," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 262-273.
    6. Emmanuel Eneche Onoja & Ademu Usman Odoma, 2020. "Assessing the Effect of Tax Administration on Smes Tax Compliance Level in Kogi State," European Journal of Social Sciences, European Center for Science Education and Research, vol. 3, January -.
    7. Alm, James & Cherry, Todd & Jones, Michael & McKee, Michael, 2010. "Taxpayer information assistance services and tax compliance behavior," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 577-586, August.
    8. Christian A. Vossler & Michael McKee, 2013. "Efficient tax reporting: The effects of taxpayer information services," Working Papers 13-24, Department of Economics, Appalachian State University.
    9. Barbaro, Salvatore & Suedekum, Jens, 2006. "Reforming a complicated income tax system: The political economy perspective," European Journal of Political Economy, Elsevier, vol. 22(1), pages 41-59, March.
    10. Torgler, Benno & Demir, Ihsan C. & Macintyre, Alison & Schaffner, Markus, 2008. "Causes and Consequences of Tax Morale: An Empirical Investigation," Economic Analysis and Policy, Elsevier, vol. 38(2), pages 313-339, September.
    11. 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.
    12. 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.

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