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Once Bitten, Twice Shy? The Lasting Impact of Enforcement on Tax Compliance

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  • Jason DeBacker
  • Bradley T. Heim
  • Anh Tran
  • Alexander Yuskavage

Abstract

We examine the impact of enforcement on subsequent compliance behavior by taxpayers. Exploiting waves of randomized audits by the Internal Revenue Service from 2006 to 2009, we find three long-run responses by taxpayers. First, audits increase tax payments substantially in following years, but this effect is short-lived when third-party reporting is not available. Second, taxpayers with high income volatility revert to their preaudit behavior quickly. Third, sophisticated taxpayers are affected less by enforcement. These responses reveal how taxpayers perceive the enforcement risk and change their noncompliance according to the dynamics of the information barrier between them and the enforcement agency.

Suggested Citation

  • Jason DeBacker & Bradley T. Heim & Anh Tran & Alexander Yuskavage, 2018. "Once Bitten, Twice Shy? The Lasting Impact of Enforcement on Tax Compliance," Journal of Law and Economics, University of Chicago Press, vol. 61(1), pages 1-35.
    • Handle: RePEc:ucp:jlawec:doi:10.1086/697683
    DOI: 10.1086/697683
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