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Endogenous Tax Audits and Taxpayer Assistance Services: Theory and Experiments

Christian Vossler and Scott M. Gilpatric ()
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Scott M. Gilpatric: Department of Economics, University of Tennessee, http://econ.bus.utk.edu/department/faculty/gilpatric.asp

No 2017-01, Working Papers from University of Tennessee, Department of Economics

Abstract: In recent years there has been a sharp rise in the information available to individual income taxpayers, such as through tax preparation software provided by third parties and support available by tax agencies, although the effects of this information on tax reporting is not well understood. Within a setting characterized by an endogenous audit process and taxpayer uncertainty, this study uses theory and laboratory experiments to investigate the effects of taxpayer assistance services that better inform taxpayers about their tax liability and the audit process. The endogenous audit rule we study is simple, yet relative to existing work is more likely to characterize the actual incentives facing taxpayers. Among our findings, and in contrast to the case of purely random audits, in theory the effect of information services on tax underreporting is ambiguous, and we find support empirically for increased tax underreporting even in a setting where theory predicts the opposite. When services provide better information on both liability and the audit process, audit information is more salient to participants, negating the strong effects observed when only liability information is provided.

Keywords: individual income tax; taxpayer assistance services; endogenous audits; tax reporting and enforcement; experimental methods (search for similar items in EconPapers)
JEL-codes: C91 D8 H24 H26 H83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue and nep-pbe
Date: 2017-03
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http://web.utk.edu/~jhollad3/RePEc/2017-01.pdf First version, 2017 (application/pdf)

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