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The Effect of Perfect Monitoring of Matched Income on Sales Tax Compliance: An Experimental Investigation

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  • Cathleen Johnson
  • David Masclet
  • Claude Montmarquette

Abstract

Noncompliance is a quantitatively important phenomenon that affects significantly revenue source for state governments. This phenomenon raises challenging questions about the determinants of tax reporting and also about the appropriate design of a tax system: how many resources should be devoted to auditing? This paper provides specific empirical insights using an experimental approach to measure the effects of systematic sales tax monitoring and the determinants of sales tax compliance. The results indicate that if perfect monitoring is instituted without other complementary policies, an increase in tax revenues is not the likely outcome. A successful policy aiming at reducing fiscal fraud might be a difficult task, once people have decided their equilibrium level of tax compliance. The reference-dependent effect observed in the data suggests that individuals will try to recover their losses following any policy changes even if it means taking more risks. Les revenus de plusieurs niveaux de gouvernements sont significativement altérés par la fraude fiscale. Découvrir les déterminants de la fraude fiscale est un défi important alors que ce phénomène pose en même temps la question du design du système de taxation. Combien de ressources devons-nous, par exemple, consacrer à l'audit? Cette recherche mobilisant l'économie expérimentale offre une analyse empirique sur les effets d'assurer systématiquement le contrôle de la taxe de vente et d'étudier les déterminants de s'acquitter du paiement de ce type de taxes. Les résultats indiquent que le contrôle parfait de la taxe de vente sans politiques complémentaires n'augmentent pas nécessairement les rentrées fiscales. Une politique efficace pour réduire la fraude fiscale s'avère une tâche difficile si les agents impliqués ont décidé d'un niveau d'équilibre de conformité dans le paiement de leurs taxes. Les données montrent que les participants tendent à recouvrer leurs pertes suite à un changement de politique fiscale même s'ils doivent prendre plus de risques pour y arriver.

Suggested Citation

  • Cathleen Johnson & David Masclet & Claude Montmarquette, 2008. "The Effect of Perfect Monitoring of Matched Income on Sales Tax Compliance: An Experimental Investigation," CIRANO Working Papers 2008s-17, CIRANO.
  • Handle: RePEc:cir:cirwor:2008s-17
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    References listed on IDEAS

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    Cited by:

    1. Imes, Amanda J. Thoe, 2013. "An examination of the sales and use tax gap based on Minnesota audit experience," Master's Theses and Plan B Papers 157013, University of Minnesota, Department of Applied Economics.
    2. Kjetil Telle, 2012. "Monitoring and enforcement of environmental regulations. Lessons from a natural field experiment in Norway," Discussion Papers 680, Statistics Norway, Research Department.
    3. Gonzalez, Fidel & Leipnik, Mark & Mazumder, Diya, 2013. "How much are urban residents in Mexico willing to pay for cleaner air?," Environment and Development Economics, Cambridge University Press, vol. 18(03), pages 354-379, June.
    4. Telle, Kjetil, 2013. "Monitoring and enforcement of environmental regulations," Journal of Public Economics, Elsevier, vol. 99(C), pages 24-34.

    More about this item

    Keywords

    sales tax; perfect monitoring; experimental economics; reference-dependent effect.; taxe de vente; fraude fiscale; économie expérimentale; politiques d'audit.;

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