Do Audits Deter Or Provoke Future Tax Noncompliance Evidence On Self Employed Taxpayers

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.

This Brief provides a cutting-edge evaluation of the application of digital technologies to tackle the informal economy. Employing institutional theory to explain the informal economy, this book reveals that the informal economy arises when formal institutional failings trigger a gap between the formal rules of the game and social norms. Chapters outline how use of digital technologies by public authorities, such as tax, social security and labor authorities, can alter social norms so that they accord with the formal rules of the game and generate a formalization of the informal economy. Setting out the e-government tools that can improve the relationship between businesses, employers, workers and citizens, and government, this book will be essential reading for academics and advanced students studying development economics, labor economics, public economics, behavioral economics, economic sociology and institutional economics as well as for government policymakers working in related fields.

Why do people in some societies tend to follow rules and obey the laws more than those in other societies? Is the difference institutional, or is 'culture' a better explanation? These are the central questions confronted in this book. This study explores these questions through a large laboratory experimental study which examined tax compliance behaviour in four countries: Sweden, Italy, Britain and the United States. We present what we call a 'Reasonable Choice Approach' demonstrating that most people are motivated to comply with social rules when the rules are clear, coherent, and consistent. This theory argues that most people are both rationally self-interested and social animals who have strong desires to behave according to the norms of their societies. Willing to Pay? demonstrates how institutions can shape individual behaviours and thereby help explain why social behaviours are so different across societies.

This Modern Guide presents a comprehensive synthesis of contemporary thought on the informal economy, which, as the author demonstrates – far from being a peripheral feature of the global economy – is a system in which the majority of the global workforce are employed and which has pervasive detrimental effects. Formalising it is therefore a priority for most governments.

Recent decades have witnessed important progress in strengthening tax systems in developing countries. Yet many areas of reform have remained stubbornly resistant to major improvements; overall revenue collection still falls short of what is needed to support effective governance and service delivery, while tax collection is too often characterized by high rates of evasion among large corporations and the rich and disproportionate, though often hidden, burdens on lower-income groups. As countries around the world deal with large COVID-19-induced debt burdens, a focus on strengthening tax systems is especially timely. Innovations in Tax Compliance draws on recent research and experience to present a new conceptual framework to guide more effective approaches to reform. Building on the achievements of recent decades, it argues for an expanded focus on the overlapping goals of building trust, navigating political resistance, and tailoring reform to unique local contexts through a focus on identifying the most binding constraints on reform. This focus, it argues, can lead not only to greater compliance, increased fairness, and higher revenues, but can also contribute to the building of state capacity, sustained political support for further reforms, and stronger fiscal contracts between citizens and governments.

This paper sets out a framework for analyzing optimal interventions by a tax administration, one that parallels and can be closely integrated with established frameworks for thinking about optimal tax policy. Its key contribution is the development of a summary measure of the impact of administrative interventions—the “enforcement elasticity of tax revenue”—that is a sufficient statistic for the behavioral response to such interventions, much as the elasticity of taxable income serves as a sufficient statistic for the response to tax rates. Amongst the applications are characterizations of the optimal balance between policy and administrative measures, and of the optimal compliance gap.

The integrity of tax systems as we know them are being challenged throughout the world. Tax avoidance schemes of various kinds are proving increasingly attractive and lucrative to wealthy individuals and large corporations. As governments fear the erosion of their tax base among those who are most able to contribute, the public is looking on, as one of its most public institutions attempts to re-invent itself through changing laws and administrative procedures. In this book, a number of experts develop the idea of responsive regulation in relation to taxation. They demonstrate how law in this area is undermining social norms and social norms are undermining law. A key factor in their analysis is the perception of justice. Explanations as to why the integrity of tax systems is under siege, and possible solutions, are examined.