The Effect of Awareness and Incentives on Tax Evasion
School of Economics and Business, NMBU; CESifo (Center for Economic Studies and Ifo Institute)
WHU - Otto Beisheim School of Management
August 30, 2013
CESifo Working Paper Series No. 4369
We examine the role of tax incentives, tax awareness, and complexity in tax evasion. We observe a specific type of tax evasion among business owners in Swedish administrative panel data, after the tax authority has approved all tax returns. For the period 2006-2009, approximately 5% of tax returns overstate a claimed dividend allowance. Tax awareness decreases and complexity increases the likelihood of misreporting. Our results indicate that some observed misreporting could be accidental, while some misreporting is deliberate tax evasion. We identify a positive and significant effect of tax rates on tax evasion, by exploiting a large kink in the tax schedule. The majority of misreporting cases remains undetected by the tax authority. Self-correction of tax evasion by taxpayers is the dominant type of detection.
Number of Pages in PDF File: 42
Keywords: tax evasion, tax compliance, tax enforcement, tax awareness, detection
JEL Classification: H260, H240, D140
Date posted: September 4, 2013
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