IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23631.html
   My bibliography  Save this paper

Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment

Author

Listed:
  • Marcelo L. Bérgolo
  • Rodrigo Ceni
  • Guillermo Cruces
  • Matias Giaccobasso
  • Ricardo Perez-Truglia

Abstract

The canonical model of Allingham and Sandmo (1972) predicts that firms evade taxes by optimally trading off between the costs and benefits of evasion. However, there is no direct evidence that firms react to audits in this way. We conducted a large-scale field experiment in collaboration with Uruguay’s tax authority to address this question. We sent letters to 20,440 small- and medium-sized firms that collectively paid more than 200 million dollars in taxes per year. Our letters provided exogenous yet nondeceptive signals about key inputs for their evasion decisions, such as audit probabilities and penalty rates. We measured the effect of these signals on their subsequent perceptions about the auditing process, based on survey data, as well as on the actual taxes paid, based on administrative data. We find that providing information about audits had a significant effect on tax compliance but in a manner that was inconsistent with Allingham and Sandmo (1972). Our findings are consistent with an alternative model, risk-as-feelings, in which messages about audits generate fear and induce probability neglect. According to this model, audits may deter tax evasion in the same way that scarecrows frighten off birds.

Suggested Citation

  • Marcelo L. Bérgolo & Rodrigo Ceni & Guillermo Cruces & Matias Giaccobasso & Ricardo Perez-Truglia, 2017. "Tax Audits as Scarecrows: Evidence from a Large-Scale Field Experiment," NBER Working Papers 23631, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23631
    Note: DEV LE PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23631.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    2. Erard, Brian & Feinstein, Jonathan S, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 70-89.
    3. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
    4. Joel Slemrod, 2019. "Tax Compliance and Enforcement," Journal of Economic Literature, American Economic Association, vol. 57(4), pages 904-954, December.
    5. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    6. Dulleck, Uwe & Fooken, Jonas & Newton, Cameron & Ristl, Andrea & Schaffner, Markus & Torgler, Benno, 2016. "Tax compliance and psychic costs: Behavioral experimental evidence using a physiological marker," Journal of Public Economics, Elsevier, vol. 134(C), pages 9-18.
    7. Slemrod, Joel, 2008. "Does It Matter Who Writes the Check to the Government? The Economics of Tax Remittance," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(2), pages 251-275, June.
    8. 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.
    9. Giorgio Coricelli & Mateus Joffily & Claude Montmarquette & Marie Villeval, 2010. "Cheating, emotions, and rationality: an experiment on tax evasion," Experimental Economics, Springer;Economic Science Association, vol. 13(2), pages 226-247, June.
    10. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
    11. Henrik Jacobsen Kleven & Claus Thustrup Kreiner & Emmanuel Saez, 2016. "Why Can Modern Governments Tax So Much? An Agency Model of Firms as Fiscal Intermediaries," Economica, London School of Economics and Political Science, vol. 83(330), pages 219-246, April.
    12. Alm, James & McClelland, Gary H. & Schulze, William D., 1992. "Why do people pay taxes?," Journal of Public Economics, Elsevier, vol. 48(1), pages 21-38, June.
    13. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance With Experimental Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(1), pages 107-114, March.
    14. Blumenthal, Marsha & Christian, Charles W. & Slemrod, Joel, 2001. "Do Normative Appeals Affect Tax Compliance? Evidence from a Controlled Experiment in Minnesota," National Tax Journal, National Tax Association, vol. 54(n. 1), pages 125-38, March.
    15. Kurt J. Beron & Helen V. Tauchen & Ann Dryden Witte, 1988. "A Structural Equation Model for Tax Compliance and Auditing," NBER Working Papers 2556, National Bureau of Economic Research, Inc.
    16. Gómez Sabaini, Juan Carlos & Morán, Dalmiro, 2014. "Tax policy in Latin America: Assessment and guidelines for a second generation of reforms," Macroeconomía del Desarrollo 133, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    17. Hallsworth, Michael & List, John A. & Metcalfe, Robert D. & Vlaev, Ivo, 2017. "The behavioralist as tax collector: Using natural field experiments to enhance tax compliance," Journal of Public Economics, Elsevier, vol. 148(C), pages 14-31.
    18. Daron Acemoglu & Matthew O. Jackson, 2017. "Social Norms and the Enforcement of Laws," Journal of the European Economic Association, European Economic Association, vol. 15(2), pages 245-295.
    19. Paul Slovic & Melissa L. Finucane & Ellen Peters & Donald G. MacGregor, 2004. "Risk as Analysis and Risk as Feelings: Some Thoughts about Affect, Reason, Risk, and Rationality," Risk Analysis, John Wiley & Sons, vol. 24(2), pages 311-322, April.
    20. Perez-Truglia, Ricardo & Troiano, Ugo, 2018. "Shaming tax delinquents," Journal of Public Economics, Elsevier, vol. 167(C), pages 120-137.
    21. Alberto Cavallo & Guillermo Cruces & Ricardo Perez-Truglia, 2017. "Inflation Expectations, Learning, and Supermarket Prices: Evidence from Survey Experiments," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(3), pages 1-35, July.
    22. Slemrod, Joel & Blumenthal, Marsha & Christian, Charles, 2001. "Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota," Journal of Public Economics, Elsevier, vol. 79(3), pages 455-483, March.
    23. Brian Erard & Jonathan Feinstein, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Carleton Industrial Organization Research Unit (CIORU) 94-03, Carleton University, Department of Economics.
    24. Dhami, Sanjit & al-Nowaihi, Ali, 2007. "Why do people pay taxes? Prospect theory versus expected utility theory," Journal of Economic Behavior & Organization, Elsevier, vol. 64(1), pages 171-192, September.
    25. Kai A. Konrad & Tim Lohse & Salmai Qari, 2017. "Compliance with Endogenous Audit Probabilities," Scandinavian Journal of Economics, Wiley Blackwell, vol. 119(3), pages 821-850, July.
    26. Stefano DellaVigna & Matthew Gentzkow, 2019. "Uniform Pricing in U.S. Retail Chains," The Quarterly Journal of Economics, Oxford University Press, vol. 134(4), pages 2011-2084.
    27. James Alm, 2019. "What Motivates Tax Compliance?," Journal of Economic Surveys, Wiley Blackwell, vol. 33(2), pages 353-388, April.
    28. Robert Dur & Ben Vollaard, 2017. "Salience of Law Enforcement: A Field Experiment," CESifo Working Paper Series 6499, CESifo Group Munich.
    29. Castro, Lucio & Scartascini, Carlos, 2015. "Tax compliance and enforcement in the pampas evidence from a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 65-82.
    30. Meiselman, Ben S., 2018. "Ghostbusting in Detroit: Evidence on nonfilers from a controlled field experiment," Journal of Public Economics, Elsevier, vol. 158(C), pages 180-193.
    31. Cowell, Frank A. & P.F. Gordon, James, 1988. "Unwillingness to pay : Tax evasion and public good provision," Journal of Public Economics, Elsevier, vol. 36(3), pages 305-321, August.
    32. Dur, Robert & Vollaard, Ben, 2019. "Salience of law enforcement: A field experiment," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 208-220.
    33. Andreas Fuster & Ricardo Perez-Truglia & Mirko Wiederholt & Basit Zafar, 2018. "Expectations with Endogenous Information Acquisition: An Experimental Investigation," NBER Working Papers 24767, National Bureau of Economic Research, Inc.
    34. Goerg, Sebastian J. & Kaiser, Johannes, 2009. "Nonparametric testing of distributions—the Epps–Singleton two-sample test using the empirical characteristic function," Stata Journal, StataCorp LP, vol. 9(3), pages 1-12.
    35. Gómez Sabaini, Juan Carlos & Jiménez, Juan Pablo, 2012. "Tax structure and tax evasion in Latin America," Macroeconomía del Desarrollo 118, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    36. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    37. Nadja Dwenger & Henrik Kleven & Imran Rasul & Johannes Rincke, 2016. "Extrinsic and Intrinsic Motivations for Tax Compliance: Evidence from a Field Experiment in Germany," American Economic Journal: Economic Policy, American Economic Association, vol. 8(3), pages 203-232, August.
    38. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    39. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, vol. 45(1), pages 107-14, March.
    40. Wändi Bruine de Bruin & Paul S. Fischbeck & Neil A. Stiber & Baruch Fischhoff, 2002. "What Number is “Fifty‐Fifty”?: Redistributing Excessive 50% Responses in Elicited Probabilities," Risk Analysis, John Wiley & Sons, vol. 22(4), pages 713-723, August.
    41. Shlomo Yitzhaki, 1987. "On the Excess Burden of Tax Evasion," Public Finance Review, , vol. 15(2), pages 123-137, April.
    42. Nicolas L. Bottan & Ricardo Perez-Truglia, 2017. "Choosing Your Pond: Location Choices and Relative Income," NBER Working Papers 23615, National Bureau of Economic Research, Inc.
    43. McKenzie, David, 2012. "Beyond baseline and follow-up: The case for more T in experiments," Journal of Development Economics, Elsevier, vol. 99(2), pages 210-221.
    44. Gerlinde Fellner & Rupert Sausgruber & Christian Traxler, 2013. "Testing Enforcement Strategies In The Field: Threat, Moral Appeal And Social Information," Journal of the European Economic Association, European Economic Association, vol. 11(3), pages 634-660, June.
    45. Sunstein, Cass R, 2003. "Terrorism and Probability Neglect," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 121-136, March-May.
    46. Marcelo Bérgolo & Rodrigo Ceni & Guillermo Cruces & Matias Giaccobasso & Ricardo Perez-Truglia, 2018. "Misperceptions about Tax Audits," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 83-87, May.
    47. Bergman, Marcelo & Nevarez, Armando, 2006. "Do Audits Enhance Compliance? An Empirical Assessment of VAT Enforcement," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(4), pages 817-832, December.
    48. Blumenthal, Marsha & Christian, Charles W. & Slemrod, Joel, 2001. "Do Normative Appeals Affect Tax Compliance? Evidence From a Controlled Experiment in Minnesota," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(1), pages 125-138, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pomeranz, Dina D. & Vila-Belda, José, 2019. "Taking State-Capacity Research to the Field: Insights from Collaborations with Tax Authorities," CEPR Discussion Papers 13688, C.E.P.R. Discussion Papers.
    2. Doerrenberg, Philipp & Peichl, Andreas, 2017. "Tax morale and the role of social norms and reciprocity: Evidence from a randomized survey experiment," ZEW Discussion Papers 17-045, ZEW - Leibniz Centre for European Economic Research.
    3. Philipp Dörrenberg & Andreas Peichl, 2018. "Tax Morale and the Role of Social Norms and Reciprocity. Evidence from a Randomized Survey Experiment," CESifo Working Paper Series 7149, CESifo Group Munich.
    4. James Alm & Laura Rosales Cifuentes & Carlos Mauricio Ortiz Niño & Diana Rocha, 2019. "Can Behavioral “Nudges” Improve Compliance? The Case of Colombia Social Protection Contributions," Games, MDPI, Open Access Journal, vol. 10(4), pages 1-23, October.
    5. Antinyan, Armenak & Asatryan, Zareh, 2019. "Nudging for tax compliance: A meta-analysis," ZEW Discussion Papers 19-055, ZEW - Leibniz Centre for European Economic Research.

    More about this item

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23631. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.