Minimising Selection Failure and Measuring Tax Gap: An Empirical Model

Sudhanshu Kumar () and R. Kavita Rao ()
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R. Kavita Rao: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: This paper presents an empirical model for minimising selection failure by tax departments in selecting cases for scrutiny assessment. This model also provides a new methodology for estimating tax gap from limited information that the department collects on a regular basis through scrutiny assessments. Using a maximum-likelihood procedure that corrects for sample selection bias, and the data on the scrutiny assessment exercise carried out by the income tax department, we estimate the model which relates the probability and extent of under-reporting to various inputs provided by the tax filer. The estimated model provides a mechanism to analyse the trade-off between two types of cases of failure - wrong selection of a case and failure to take up the potential underreporter.

Keywords: Selection Failure; Tax Gap (search for similar items in EconPapers)
JEL-codes: C52 H26 (search for similar items in EconPapers)
Pages: 12
Date: 2015-05
New Economics Papers: this item is included in nep-iue and nep-pbe
Note: Working Paper 150, 2015
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Citations: View citations in EconPapers (4)

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