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Compliance effects of risk-based tax audits

Author

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  • Torsvik, Gaute
  • Raaum, Oddbjørn
  • Løyland, Knut
  • Øvrum, Arnstein

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

  • Torsvik, Gaute & Raaum, Oddbjørn & Løyland, Knut & Øvrum, Arnstein, 2019. "Compliance effects of risk-based tax audits," OSF Preprints 6u3ns, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:6u3ns
    DOI: 10.31219/osf.io/6u3ns
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    1. Gabriele Mazzolini & Laura Pagani & Alessandro Santoro, 2022. "The deterrence effect of real-world operational tax audits on self-employed taxpayers: evidence from Italy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(4), pages 1014-1046, August.
    2. Andreea-Florentina Crăciun & Raluca-Ioana Racataian & Nicoleta-Claudia Moldovan, 2022. "Radiography of the Tax Inspection Activity in the Context of Contemporary Challenges," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 854-862, September.
    3. Kasper, Matthias & Rablen, Matthew D., 2023. "Tax compliance after an audit: Higher or lower?," Journal of Economic Behavior & Organization, Elsevier, vol. 207(C), pages 157-171.
    4. Eberhartinger, Eva & Safaei, Reyhaneh & Sureth, Caren & Wu, Yuchen, 2021. "Are risk-based tax audit stretegies rewarded? An analysis of corporate tax avoidance," arqus Discussion Papers in Quantitative Tax Research 267, arqus - Arbeitskreis Quantitative Steuerlehre.

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    More about this item

    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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