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on Informal and Underground Economics |
| By: | Janina Enachescu (University of Vienna); Žiga Puklavec (University of Vienna); Christian Martin Bauer (University of Vienna); Jerome Olsen (University of Vienna); Erich Kirchler (University of Vienna); James Alm (Tulane University) |
| Abstract: | In this paper we present initial investigations of the role of emotions on tax compliance decisions. We first introduce selected emotion theories, and we also present different paths by which emotions can possibly affect tax decisions, namely indirectly via mood and emotions unrelated to the tax decision itself (or "incidental emotions") and directly via emotions that are elicited in the taxation context itself (or "integral emotions"). We then present and discuss an experimental study investigating the first path suggested above, the influence of positive versus negative mood on tax compliance. Further, we also present and analyze a study exploring emotions elicited by the taxation context. Finally, we suggest that a fruitful path for future research is the integration of emotions into the slippery slope framework of tax compliance. |
| Keywords: | Tax compliance, incidental emotions, integral emotions, behavioal economics, nudges, laboratory experiments. |
| JEL: | H26 C91 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1909&r=all |
| By: | Sebastian Beer; Matthias Kasper; Erich Kirchler; Brian Erard |
| Abstract: | This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections. |
| Date: | 2019–10–11 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:19/223&r=all |
| By: | James Alm (Tulane University); James C. Cox (Georgia State University); Vjollca Sadiraj (Georgia State University) |
| Abstract: | We develop and analyze a dynamic model of individual taxpayer compliance choice that predicts "audit state dependent taxpayer compliance," by distinguishing between the implications of forward-looking versus myopic versus naïve behavior. We then test experimentally the audit state dependent model by reporting the results from the first tax compliance experiment run in Colombia. Consistent with previous studies as well as theoretical predictions, we find that subjects' compliance rates increase with greater enforcement, especially the audit rate. We also find more novel results, both theoretically and empirically: fine rates should be increased after an audit to discourage otherwise-increased underreporting, and "nudging" myopic individuals toward reporting a constant rather than a fluctuating proportion of income would benefit both the taxpayer and the tax authority. |
| Keywords: | Tax compliance, nudges, laboratory experiments. |
| JEL: | H26 C91 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1907&r=all |
| By: | James Alm (Tulane University); Laura Rosales Cifuentes (Gandour Consultores); Carlos Mauricio Ortiz Niño (Gandour Consultores); Diana Rocha (Gandour Consultores) |
| Abstract: | The Government of Colombia imposes a variety of taxes that must be paid by individual wage earners, called in their entirety "social protection contributions". Since 2007 individual payments have been collected using an on-line mechanism. In order to improve compliance, the Government used a controlled field experiment in which various "pop-up messages" were sent to individuals when making their on-line payments, as behavioral "nudges". We examine the impact of these nudges on individual reporting behavior. We find mixed evidence that these messages increased compliance rates relative to a control group that received a so-called "neutral" message. However, we also demonstrate that the use as the control group of individuals receiving a so-called "neutral" message creates considerable bias; that is, the receipt of any message of any type clearly influences behavior. Instead, we show that the appropriate control group should be individuals who receive no message at all. |
| Keywords: | tax compliance; behavioral economics; nudges; controlled field experiments. |
| JEL: | H2 H26 C9 |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:tul:wpaper:1908&r=all |
| By: | Yoshio Kamijo; Takehito Masuda; Hiroshi Uemura |
| Abstract: | We employed a game-theoretic framework to formulate and analyze a number of tax audit rules, especially the lowest income reporter audited rule. We explicitly considered the auditor’s resource constraint to choose one target from a continuous type of taxpayer. We then tested the theoretical predictions in a laboratory experiment, using three audit rules: the random, cut-off, and lowest income reporter audited rules. While the cut-off rule is known to be optimal in theory, it has not thus far been examined in a controlled laboratory experimental setting. Contrary to the theory, the lowest income reporter audited rule increased average compliance behavior significantly more compared with the optimal cut-off rule and, especially, the random rule. This holds with and without controlling the subjects’ demographics and attitudes regarding tax payment. This finding is practically important because the tax authorities in most countries assign higher priority to enhancing tax compliance. |
| Date: | 2019–10 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1064&r=all |