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Prefilled Income Tax Returns and Tax Compliance: Evidence from a Natural Experiment

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  • Kotakorpi Kaisa
  • Laamanen Jani-Petri

    (School of Management, University of Tampere)

Abstract

Despite the adoption of prefilled tax forms in many countries, little is known about their effects on taxpayers’ reporting behaviour. We estimate the effect of the income tax filing system on taxpayers’ reporting behaviour, utilising data from a Finnish policy experiment. We find that receiving a (partially) prefilled income tax return lead to a significant reduction in non-prefilled deductions and self-reported income, and an increase in deductions that were prefilled in the new system. However, we do not find effects on individuals’ total taxable income or taxes paid. We discuss complexity and compliance costs, salience effects, and changes in the opportunities for tax evasion as possible explanations for our findings.

Suggested Citation

  • Kotakorpi Kaisa & Laamanen Jani-Petri, 2016. "Prefilled Income Tax Returns and Tax Compliance: Evidence from a Natural Experiment," Working Papers 1604, University of Tampere, School of Management, Economics.
  • Handle: RePEc:tam:wpaper:1604
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    File URL: http://urn.fi/URN:ISBN:978-952-03-0150-7
    File Function: First version, 2016
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    References listed on IDEAS

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    1. Alm, James & Cherry, Todd & Jones, Michael & McKee, Michael, 2010. "Taxpayer information assistance services and tax compliance behavior," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 577-586, August.
    2. 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.
    3. Joel Slemrod, 1989. "The Return To Tax Simplification: an Econometric Analysis," Public Finance Review, , vol. 17(1), pages 3-27, January.
    4. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    5. Amy Finkelstein, 2009. "E-ztax: Tax Salience and Tax Rates," The Quarterly Journal of Economics, Oxford University Press, vol. 124(3), pages 969-1010.
    6. Pitt, Mark M & Slemrod, Joel, 1989. "The Compliance Cost of Itemizing Deductions: Evidence from Individual Tax Returns," American Economic Review, American Economic Association, vol. 79(5), pages 1224-1232, December.
    7. Raj Chetty & Emmanuel Saez, 2013. "Teaching the Tax Code: Earnings Responses to an Experiment with EITC Recipients," American Economic Journal: Applied Economics, American Economic Association, vol. 5(1), pages 1-31, January.
    8. 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.
    9. Christian Gillitzer & Peer Ebbesen Skov, 2013. "Evidence on Unclaimed Charitable Contributions from the Introduction of Third-Party Information Reporting in Denmark," EPRU Working Paper Series 2013-04, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
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    Cited by:

    1. Tazhitdinova, Alisa, 2015. "Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions," MPRA Paper 81612, University Library of Munich, Germany, revised 2017.
    2. Fochmann, Martin & Müller, Nadja & Overesch, Michael, 2018. "Less cheating? The effects of prefilled forms on compliance behavior," arqus Discussion Papers in Quantitative Tax Research 227, arqus - Arbeitskreis Quantitative Steuerlehre.

    More about this item

    Keywords

    income tax filing; complexity; salience; tax evasion; natural experiment;

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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