When are Enhanced Relationship Tax Compliance Programs Mutually Beneficial?

Abstract:     
This study investigates the circumstances under which “enhanced relationship” tax compliance programs are mutually beneficial to taxpayers and tax authorities, as well as how these benefits are shared. We develop a model of taxpayer and revenue authority behavior inside and outside of an enhanced relationship program. Our model suggests that, despite the adversarial nature of the relationship, an enhanced relationship program is mutually beneficial in many settings. The benefits are due to lower audit costs and the effect of taxpayer disclosures on the tax authority’s audit strategy. We also identify settings in which the program would decrease total expected tax compliance and audit costs, but these savings are not achieved because the program would make one party or the other worse off, and thus unwilling to enter the program.

Number of Pages in PDF File: 30

Keywords: tax compliance, multinational taxation, game theory

working papers series