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Ambiguity, Audit Errors, and Tax Compliance

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  • Sung-Soo Yoon
  • Seung-Weon Yoo
  • Jinbae Kim

Abstract

We examine the impact of tax law ambiguity and tax audit errors on tax compliance in a setting where litigation is allowed. A decrease in audit errors discourages aggressive reporting and leads to fewer audits and trials. A reduction in tax ambiguity, however, has indeterminate effects on aggressive reporting and litigation frequencies. A more effective tax audit benefits taxpayers with relatively strong cases but not those with weak ones. A tax cut encourages aggressive reporting and lowers net revenue. An increase in the penalty, however, leads to less aggressive reporting and higher net revenue without making anyone worse off.

Suggested Citation

  • Sung-Soo Yoon & Seung-Weon Yoo & Jinbae Kim, 2011. "Ambiguity, Audit Errors, and Tax Compliance," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 18(1), pages 11-26.
    • Handle: RePEc:taf:raaexx:v:18:y:2011:i:1:p:11-26
    DOI: 10.1080/16081625.2011.9720871
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    Cited by:

    1. Yoshio Kamijo & Takehito Masuda & Hiroshi Uemura, 2015. "Who is audited? Experimental study on rule-based and human tax auditing schemes," Working Papers SDES-2015-9, Kochi University of Technology, School of Economics and Management, revised Jan 2015.
    2. 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.

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