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Do Individuals Comply on Income Not Reported by Their Employer?

Author

Listed:
  • James Alm

    (Georgia State University)

  • John Deskins

    (Creighton University)

  • Michael McKee

    (Appalachian State University)

Abstract

Individuals with income not reported to the tax authority by a third party (e.g., the self-employed, those earning tips) may be less likely to be detected evading taxes relative to the case in which their income is subject to third-party reporting. However, their compliance responses—to changes in the proportion of income that is reported to the tax authority, to changes in audit and tax rates, etc.—are largely unknown, in part because of the difficulty in obtaining information on individual choices in these situations. The authors use experimental methods to examine individual income tax compliance in settings where individuals differ in the portion of their income that is ``matched'' (reported to the tax authority via third-party information) versus ``nonmatched'' (not fully reported to the tax authority). The results indicate that individuals who have relatively more nonmatched income exhibit significantly lower tax compliance rates than individuals who earn relatively less nonmatched income.

Suggested Citation

  • James Alm & John Deskins & Michael McKee, 2009. "Do Individuals Comply on Income Not Reported by Their Employer?," Public Finance Review, , vol. 37(2), pages 120-141, March.
  • Handle: RePEc:sae:pubfin:v:37:y:2009:i:2:p:120-141
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Friedrich Heinemann & Martin Kocher, 2013. "Tax compliance under tax regime changes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(2), pages 225-246, April.
    2. Figari, Francesco & Paulus, Alari & Sutherland, Holly, 2014. "Microsimulation and policy analysis," ISER Working Paper Series 2014-23, Institute for Social and Economic Research.
    3. Martin Abraham & Kerstin Lorek & Friedemann Richter & Matthias Wrede, 2017. "Collusive tax evasion and social norms," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(2), pages 179-197, April.
    4. James Alm & Todd Cherry & Michael McKee & Michael L. Jones, 2010. "Investigating Behavioral Responses to Positive Inducements for Filing Tax Returns," Working Papers 10-11, Department of Economics, Appalachian State University.
    5. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    6. Dina Pomeranz, 2015. "No Taxation without Information: Deterrence and Self-Enforcement in the Value Added Tax," American Economic Review, American Economic Association, vol. 105(8), pages 2539-2569, August.
    7. James Alm & Kim M. Bloomquist & Michael McKee, 2015. "On The External Validity Of Laboratory Tax Compliance Experiments," Economic Inquiry, Western Economic Association International, vol. 53(2), pages 1170-1186, April.

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