Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers

By Sebastian Beer, Matthias Kasper, Erich Kirchler, Brian Erard

October 11, 2019

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Sebastian Beer, Matthias Kasper, Erich Kirchler, and Brian Erard. Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers, (USA: International Monetary Fund, 2019) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections.

Subject: Auditing, National accounts, Personal income, Public financial management (PFM), Revenue administration, Tax assessments, Tax auditing and verification, Tax return filing compliance

Keywords: Audit assessment, Audit experience, Audit outcome, Audit sample, Audit selection, Audit selection decision, Audit selection process, Audited taxpayer, Auditing, CIT audit, Control group, Impact evaluation, Personal income, Small business taxpayers, Tax assessments, Tax auditing and verification, Tax return filing compliance, Treatment effect, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/223
Stock No:

WPIEA2019223
ISBN:

9781513515373
ISSN:

1018-5941

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