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AUDIT STATE DEPENDENT TAXPAYER COMPLIANCE: THEORY AND EVIDENCE FROM COLOMBIA

James Alm (), James Cox () and Vjollca Sadiraj ()

No 1907, Working Papers from Tulane University, Department of Economics

Abstract: We develop and analyze a dynamic model of individual taxpayer compliance choice that predicts "audit state dependent taxpayer compliance," by distinguishing between the implications of forward-looking versus myopic versus naïve behavior. We then test experimentally the audit state dependent model by reporting the results from the first tax compliance experiment run in Colombia. Consistent with previous studies as well as theoretical predictions, we find that subjects' compliance rates increase with greater enforcement, especially the audit rate. We also find more novel results, both theoretically and empirically: fine rates should be increased after an audit to discourage otherwise-increased underreporting, and "nudging" myopic individuals toward reporting a constant rather than a fluctuating proportion of income would benefit both the taxpayer and the tax authority.

Keywords: Tax compliance; nudges; laboratory experiments. (search for similar items in EconPapers)
JEL-codes: H26 C91 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-acc, nep-exp, nep-iue, nep-law and nep-pub
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http://repec.tulane.edu/RePEc/pdf/tul1907.pdf First Version, October 2019 (application/pdf)

Related works:
Journal Article: AUDIT STATE DEPENDENT TAXPAYER COMPLIANCE: THEORY AND EVIDENCE FROM COLOMBIA (2020) Downloads
Working Paper: Audit State Dependent Taxpayer Compliance: Theory and Evidence from Colombia (2019) Downloads
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