Experimental Evidence on Mixing Modes in Income Tax Evasion

Ronald G. Cummings, Jorge Martinez-Vazquez () and Michael McKee

Public Finance Review, 2006, vol. 34, issue 6, 663-686

Abstract: Taxpayers unlawfully trying to avoid income tax in most countries can mis-report a wide variety of line items, including income sources, exemptions, deductions, and credits. Such portfolio opportunities, or “modes,†for evasion raise important policy questions. For example, increasing the probability of detection in underreporting of income may increase compliance in terms of income reporting but may decrease compliance as a result of increased evasion through over reporting of deductions. It is possible that the resulting increase in revenue from the mode targeted for increased enforcement effort will be partially, or even fully, offset by deteriorating compliance in other modes. In this article, data from a series of laboratory experiments are used to investigate the compliance behavior of individuals when evasion can be accomplished via multiple items. The findings suggest that increasing enforcement for a single item may lead to revenue declines as evasion increases in other items as an offset.

Keywords: tax evasion; tax enforcement; experimental methods (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:34:y:2006:i:6:p:663-686

DOI: 10.1177/1091142106291474

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