Does the “bomb crater” effect really exist? Evidence from the laboratory

Matthias Kasper () and James Alm ()
Additional contact information
Matthias Kasper: University of Vienna

No 2118, Working Papers from Tulane University, Department of Economics

Abstract: This study uses a laboratory experiment to investigate two behavioral explanations for taxpayers’ tendency to reduce their compliance after an audit (the “bomb crater effect”): the tendency to make up for losses incurred in the past (loss repair), and the incorrect assumption that experiencing an audit decreases the risk of a future audit (misperception of risk). Our findings suggest that audits do not have a strong effect in the aggregate. However, behavioral responses depend on the audit outcome. While taxpayers who were found to report all income correctly are substantially less compliant in their subsequent tax declaration, taxpayers who were found to evade their entire income show the opposite response. These results suggest that audits do not induce a general tendency for loss repair or a general misperception of the risk of a subsequent audit. Moreover, when comparing these changes in reporting behavior to the behavior of taxpayers who did not experience an audit, we find that audits do in fact not induce strong behavioral responses in general, and they do not induce a “bomb crater effect” in particular. Rather, our findings suggest that taxpayers reporting compliance in the laboratory is volatile, even absent any audits. We conclude that experimental studies should use control groups of unaudited taxpayers to identify the causal effect of audits on post-audit tax compliance.

Keywords: Tax compliance; Bomb crater effect; Laboratory experiments (search for similar items in EconPapers)
JEL-codes: C9 H26 H83 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-acc, nep-cbe, nep-exp, nep-iue and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://repec.tulane.edu/RePEc/pdf/tul2118.pdf First Version, December 2021 (application/pdf)

Related works:
Journal Article: Does the Bomb-crater Effect Really Exist? Evidence from the Laboratory (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tul:wpaper:2118

Access Statistics for this paper

More papers in Working Papers from Tulane University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Kerui Geng ().