The effects of tax rates and enforcement policies on taxpayer compliance: A study of self-employed taxpayers

Mukhtar Ali, H. Cecil and James Knoblett

Atlantic Economic Journal, 2001, vol. 29, issue 2, 186-202

Abstract: This paper presents an econometric analysis of taxpayer compliance, exploring its relationship with audit rates, penalties if detected, tax rate schedule, income level, and sources of self-employment income. Using data drawn from the Annual Report of the Commissioner of Internal Revenue Service [IRS, various] and the Data Book [IRS, various] for 1980 to 1995, the audit rate and penalty rate are both effective deterrents to noncompliance. The effectiveness of these two policy instruments depends upon the individual's level of income. It seems the higher the income level, the more effective these instruments are. In general, compliance increases with the level of income but at a decreasing rate. It is also found that individuals tend to comply less as the marginal tax rate rises. Again, such tendency is more pronounced for high-income taxpayers than for low-income taxpayers. Copyright International Atlantic Economic Society 2001

Date: 2001
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DOI: 10.1007/BF02299137

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