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When the State Doesn't Play Dice: Aggressive Audit Strategies Foster Tax Compliance

Luigi Mittone, Matteo Ploner and Eugenio Verrina

No 1702, CEEL Working Papers from Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia

Abstract: We experimentally test the effect of aggressive audit strategies on tax compliance. Tax payers first go through a phase of audits managed by a human tax agent who is requested to follow a rule imposed by a fair random device. However, the tax agent can freely decide to break the rule and over-inspect. Afterwards, tax payers are exposed to a genuinely random audit process governed by an al- gorithm, which makes compliance a strategically dominated option. Our main result is that tax payers are generally over-inspected by the human tax agents and react to this with nearly full compliance. Interestingly, these high levels of compliance persist also when con- trols are implemented by the algorithm. We conclude that aggressive audit strategies can effectively be used by tax authorities to raise and sustain tax compliance.

Keywords: tax evasion; audit strategies; die under the cup; endogenous inspections. (search for similar items in EconPapers)
JEL-codes: C91 C92 H24 H26 H83 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue and nep-pbe
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Journal Article: When the state does not play dice: aggressive audit strategies foster tax compliance (2021) Downloads
Working Paper: When the state does not play dice: aggressive audit strategies foster tax compliance (2021)
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