Combating overreporting of deductions in tax returns: prefilling and restricting the deductibility of expenditures

Martin Fochmann (), Frank Hechtner (), Tobias Kölle () and Michael Overesch ()
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Martin Fochmann: Freie Universität Berlin
Frank Hechtner: Friedrich-Alexander-Universität Erlangen-Nürnberg
Tobias Kölle: University of Cologne
Michael Overesch: University of Cologne

Journal of Business Economics, 2021, vol. 91, issue 7, No 1, 935-964

Abstract: Abstract We experimentally analyze three anti-tax-evasion mechanisms: (1) prefilling of deductions in tax returns, (2) restricting tax evasion opportunities by either disallowing or (3) limiting the deductibility of expenditures. We find that prefilling compared to blank forms reduces tax evasion. Cutting the number of tax evasion opportunities by disallowing the deductibility of expenditure items is an ineffective mechanism to combat tax evasion as individuals shift their tax evasion activities from the disallowed item to other non-restricted items. In contrast, our results suggest that just limiting the deductibility of expenditures avoids this evasion-shift-effect.

Keywords: Tax compliance; Tax evasion; Deductions; Prefilled tax returns; Behavioral economics (search for similar items in EconPapers)
JEL-codes: C91 D90 H26 K42 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s11573-020-01024-7

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