The dynamic effects of tax audits

Arun Advani, William Elming () and Jonathan Shaw
Additional contact information
William Elming: Institute for Fiscal Studies and Institute for Fiscal Studies
Jonathan Shaw: Institute for Fiscal Studies and Financial Conduct Authority

No W17/24, IFS Working Papers from Institute for Fiscal Studies

Abstract: Understanding tax non-compliance and the effectiveness of strategies to tackle it is crucial for a modern tax authority. In this paper we study how and why audits impact reported tax in the years after audit - the dynamic effect - for individual income taxpayers. We exploit data from a random audit program covering almost 35,000 income tax self assessment returns in the UK. We show that audits raise reported tax liabilities for at least five years after audit, with the magnitude of the impact declining over time. In total this raises an additional $1; 230 per audited individual in the five years after audit, 1.5 times the direct revenue raised from the audit. Looking by income source, we see that the magnitude of the initial impact is lower for income components which are third party reported, and the impact declines more quickly for components that are more volatile. We develop a model to allow us to distinguish different mechanisms that might explain the presence of dynamic effects, and show our findings can only be explained by audits providing improved information to the tax authority.

Keywords: tax audits; tax revenue; tax reporting decisions; income tax; self assessment; HMRC (search for similar items in EconPapers)
JEL-codes: D04 H26 H83 (search for similar items in EconPapers)
Date: 2017-10-26
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://www.ifs.org.uk/uploads/WP201724.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://www.ifs.org.uk/uploads/WP201724.pdf [302 Found]--> https://ifs.org.uk/uploads/WP201724.pdf)

Related works:
Journal Article: The Dynamic Effects of Tax Audits (2023)
Working Paper: The Dynamic Effects of Tax Audits (2019)
Working Paper: The Dynamic Effects of Tax Audits (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ifs:ifsewp:17/24

Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

Access Statistics for this paper

More papers in IFS Working Papers from Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().