Deterrence Effects of Auditing Rules: An Experimental Study

Fangfang Tan and Andrew Yim

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the deterrence effect of two auditing rules via a laboratory experiment. A traditional rule which is usually assumed in the auditing literature, audits a taxpayer with a constant probability, which is independent of others' tax returns. A bounded rule recently proposed and analyzed in the literature chooses a sample from the population of reported low-income taxpayers to audit, taking into account the capacity of the auditor. We �find that the deterrence effect of a bounded rule is as strong as that of a traditional rule, but is more cost-effective since fewer audits are conducted. The results lend further support to the bounded rule as a more cost-effective alternative to the traditional rule.

Keywords: Audit sampling plan; tax audit; tax compliance; tax evasion; experimental economics. (search for similar items in EconPapers)
JEL-codes: C72 C9 H26 M42 (search for similar items in EconPapers)
Date: 2010-09-17
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https://mpra.ub.uni-muenchen.de/27948/1/MPRA_paper_27948.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/31149/2/MPRA_paper_31149.pdf revised version (application/pdf)
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