Tax compliance with endogenous audit selection and heterogeneity of income

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216224%3A14560%2F19%3A00108136" target="_blank" >RIV/00216224:14560/19:00108136 - isvavai.cz</a>

Result on the web

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DOI - Digital Object Identifier

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Result language

angličtina

Original language name

Tax compliance with endogenous audit selection and heterogeneity of income

Original language description

It has been shown in the experimental tax compliance literature that endogenous audit selection mechanism (ASM) increases tax compliance. However, this literature assumes that the tax authority has an unbiased observation of the actual taxpayers' income and consequently the taxpayers with the largest difference between the observed and reported income are most likely to be selected for audit. In reality, the tax authority might not have unbiased information about the actual incomes as these might be observed only for taxpayers who have been selected for audit. In this case, the ASM can be based only on reported incomes. The aim of the paper is to design an endogenous ASM that uses only the reported incomes and experimentally compare the tax compliance under the endogenous and random ASMs. We develop a theoretical model where taxpayers have heterogeneous income and the ASM is based only on the reported income. We show that in the symmetric Bayes-Nash equilibrium the proposed endogenous ASM entails a higher reported income than the random ASM. We test predictions of the model in an economic experiment. Each experimental session consists of 30 rounds. In each round, subjects may be selected for audit with a certain audit probability. In the random ASM, the probability of audit is exogenous and the same for all taxpayers.

Czech name

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Czech description

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Type

O - Miscellaneous

CEP classification

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OECD FORD branch

50200 - Economics and Business

Project

<a href="/en/project/GA17-00496S" target="_blank" >GA17-00496S: Tax Compliance with a Competitive Audit Selection Mechanism: An Experimental Approach</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2019

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů