Niu, Yongzhi (2010): Taxpayers' Response to Warnings of a Possible Tax Audit: Do They Change Their Compliance Behavior?
Download (354kB) | Preview
In 2008, the New York State Department of Taxation and Finance sent letters to clients of a fraudulent tax preparer, warning them of a possible audit and asking them to participate in the Department’s Voluntary Disclosure and Compliance Program if they had filed inaccurate tax returns in the past. This study examines the impact of the letters on voluntary compliance in their future (2008 and 2009) returns. In this study, a simple method similar to “difference in differences”, which we call “difference in positions”, is applied. 10,000 samples are randomly drawn from the taxpayer population and the growth rates of Federal adjusted gross income (AGI) for these samples are put into relative frequency density graphs. We then examine the relative positions of the experiment group (the clients of the fraudulent tax preparer) within the normally distributed curves before and after the letters were sent. The change in the relative positions is regarded as the letter impact on voluntary compliance. It is found that the impact is significant in the first year (2008 tax returns) after the letters were sent. The impact is 17.49 percentage points on the AGI growth rate, which translates to $8.68 million of reported AGI for the 507 taxpayers in the experiment group. However, the impact is minimal in the second year (2009 tax returns), indicating that the long-run effect of the letter mailings may be weak.
|Item Type:||MPRA Paper|
|Original Title:||Taxpayers' Response to Warnings of a Possible Tax Audit: Do They Change Their Compliance Behavior?|
|Keywords:||tax; audit impact; voluntary compliance; differnces-in-differences; difference-in-positions; personal income tax|
|Subjects:||H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H29 - Other
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance
|Depositing User:||Yongzhi Niu|
|Date Deposited:||01. Oct 2010 00:28|
|Last Modified:||14. Feb 2013 10:02|
Allingham, Michael and Agnar Sandmo. 1972. “Income Tax Evasion: A Theoretical Analysis,” Journal of Public Economics, 1(3-4): 323-338.
Alm, James, Betty Jackson, and Michael McKee. 1992(1). “Estimating the Determinants of Taxpayer Compliance with Experimental Data,” National Tax Journal, 45(1): 107-144.
Alm, James, Betty Jackson, and Michael McKee. 1992(2). “Institutional Uncertainty and Taxpayer Compliance,” The American Economic Review, 82(4): 1018-1026.
Alm, James, and Michael McKee. 2006. “Audit Certainty, Audit Productivity, and Taxpayer Compliance,” Andrew Young School of Policy Studies Research Paper No. 06-43.
Alm, James, Michael McKee, and William Beck. 1990. “Amazing Grace: Tax Amnesties and Compliance,” National Tax Journal, 43(1): 23-37.
Angrist, Joshua and Jorn-Steffen Pichke. 2010. “the Credibility Revolution in Empirical Economics: How Better Research Design is Taking the Con out of Econometrics,” The Journal of Economic Perspectives, 24(2): 3-30.
Beck, Paul, and Woon-Oh Jung. 1989. “Taxpayer Compliance under Uncertainty,” Journal of Accounting and Public Policy, 8(1): 1-27.
Bermasconi, Michele. 1998. “Tax Evasion and Orders of Risk Aversion,” Journal of Public Economics, 67 (1): 123-134.
Blundell, Richard, Alan Duncan, and Costas Meghir. 1998. “Estimating Labor Supply Responses Using Tax Reforms,” Econometrica, 66(4): 827-861.
Card, David and Alan Krueger. 1993. “Trends in Relative Black-White Earnings Revisited,” American Economic Review, 83(2): 85-91.
Card, David and Alan Krueger. 1994. “Minimum Wages and Employment: A Case Study in the Fast-Food Industry in New Jersey and Pennsylvania,” Trends in Relative Black-White Earnings revisited,” American Economic Review, 84(4): 772-793.
Erard, Brian, and Jonathan Feinstein. 1994. “Honesty and Evasion in the Compliance Game.” The RAND Journal of Economics, 25(1): 1-19.
Eissa, Nada and Jeffrey Liebman. 1996. “Labor Supply Response to the Earned Income Tax Credit,” Quarterly Journal of Economics, 111(2): 605-637.
Imbens, Guido and Jeffrey Woolddridge. 2009. “Recent Development in the Econometrics of Program Evaluation,” Journal of Economic Literature, 47(1): 5-86.
Kastlunger, Barbara, Erich Kirchler, Luigi Mittone, and Julia Pitters. 2009. “Sequences of Audits, Tax Compliance, and Taxpaying Strategies,” Journal of Economic Psychology, 30(3): 405-418.
Keane, Michael. 2010. “A Structural Perspective on the Experimentalist School,” The Journal of Economic Perspectives, 24(2): 47-58.
Kirchler, Erich. 2007. The Economic Psychology of Tax Behaviour. Cambridge University Press, Cambridge.
Kirchler, Erich, Erik Hoelzl, and Ingrid Wahl. 2008. “Enforced versus Voluntary Tax Compliance. The “Slippery Slope” Framework,” Journal of Economic Psychology, 29(2): 210-225.
Leamer, Edward. 1983. “Let’s Take the Con Out of Econometrics,” American Economic Review, 73(1): 31-43.
Leamer, Edward. 2010. “Tantalus on the Road to Asymptopia,” The Journal of Economic Perspectives, 24(2): 31-46.
Mittone, Luigi. 2006. “Dynamic Behavior in Tax Evasion: An experimental Approach,” The Journal of Social-Economics, 35(5): 813-835.
Sims, Christopher. 2010. “But Economics is not Experimental Science,” The Journal of Economic Perspectives, 24(2): 59-68.
Slemrod, Joel, Marsha Blumenthal, and Charles Christian. 2001. “Taxpayer Response to an Increased Probability of Audit: Evidence from a Controlled Experiment in Minnesota,” Journal of Public Economics, 79(3): 455-483.