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Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions

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  • Tazhitdinova, Alisa

Abstract

Using a quasi-experimental design, I show that self-reported information requirements are effective at reducing evasion. I use a reform that simplified the reporting rules for tax deductions of noncash charitable contributions in the U.S. to show that weaker reporting requirements led to a large increase in the reported donations but that nearly 50% of these donations were untruthful. At the same time, individuals experienced a substantial reduction in their reporting costs, an average of $82 per person. Next, I provide a theoretical framework that accounts for the observed trade-off between evasion and compliance costs to determine the optimal information requirements. I show that reporting should only be imposed on individuals with reported donations above a pre-specified threshold and that the threshold is primarily governed by the type and magnitude of cheating. Model calibrations in the case of noncash charitable donation deductions show that an optimally chosen threshold would reduce the welfare loss due to compliance and evasion by 70%.

Suggested Citation

  • Tazhitdinova, Alisa, 2015. "Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions," MPRA Paper 81612, University Library of Munich, Germany, revised 2017.
  • Handle: RePEc:pra:mprapa:81612
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    File URL: https://mpra.ub.uni-muenchen.de/81612/1/MPRA_paper_81612.pdf
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    More about this item

    Keywords

    Information Reporting; Evasion; Compliance Cost; Tax Filing; Charitable Giving;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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