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Compliance effects of risk-based tax audits

Author

Listed:
  • Knut Løyland
  • Oddbjørn Raaum
  • Gaute Torsvik
  • Arnstein Øvrum

Abstract

Tax administrations use machine learning to predict risk scores as a basis for selecting individual taxpayers for audit. Audits detect noncompliance immediately, but may also alter future filing behavior. This analysis is the first to estimate compliance effects of audits among high-risk wage earners. We exploit a sharp audit assignment discontinuity in Norway based on individual tax payers risk score. Additional data from a random audit allow us to estimate how the audit effect vary across the risk score distribution. We show that the current risk score audit threshold is set far above the one that maximizes net public revenue.

Suggested Citation

  • Knut Løyland & Oddbjørn Raaum & Gaute Torsvik & Arnstein Øvrum, 2019. "Compliance effects of risk-based tax audits," CESifo Working Paper Series 7616, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_7616
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    File URL: https://www.cesifo-group.de/DocDL/cesifo1_wp7616.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    tax audits; tax revenue; tax reporting decisions; income tax; machine learning; risk; profiling;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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