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Can transparency hurt? An experiment on whether disclosure of audit policy details reduces tax compliance

Tan, Fangfang and Yim, Andrew (2011): Can transparency hurt? An experiment on whether disclosure of audit policy details reduces tax compliance.

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Abstract

Tax authorities around the world often are reluctant to disclose audit policy details. In particular, the US Internal Revenue Service (IRS) has the practice of releasing broad statistics like the audit rate of each income class but resists pressures demanding details on how different circumstances might result in a higher audit probability to taxpayers. This paper experimentally examines whether disclosing such details can reduce tax compliance. We compare a Flat-rate treatment, where taxpayers are told about the average audit probability, with a Bounded treatment, where taxpayers are fully informed of the contingent audit probability structure. Our findings do not support the potential concern against disclosing details. In an additional Bounded-hi-q treatment where multiple equilibria exist, the compliance level is even higher under full disclosure of the probability structure.

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