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Revealing Choices: Using Taxpayer Choice to Target Tax Enforcement

Alex Raskolnikov

Columbia University - Law School

February 11, 2009

Columbia Law Review, May 2009
Columbia Law and Economics Working Paper No. 337

People pay their taxes for many different reasons. Some choose to game the system, paying only when the cost of noncompliance outweighs its benefits. Others comply out of habit, a sense of duty or reciprocity, a desire to avoid feelings of guilt or shame, and for many other reasons. Our tax enforcement system has ignored this variety of taxpaying motivations for decades. It continues to rely primarily on audits and penalties, at least where information reporting and withholding are impossible. Fines and audits work well for those rationally playing the tax compliance game, but are wasteful or even counterproductive when applied to others. The shortcomings of the current one-size-fits-all approach to tax enforcement are well understood. They also appear to be insurmountable. This Article argues that it is possible to design a more tailored regime. The idea is to separate all taxpayers based on their taxpaying motivations by creating two different enforcement regimes and inducing taxpayers to choose one when they file their annual returns. Once the separation is accomplished, the government can target enforcement by matching enforcement policies to taxpayer types. Those who choose to game the system would be deterred by higher penalties in one regime. All others would be induced to comply by cooperative enforcement measures in the other. If successful, separation and targeted enforcement would improve tax compliance without raising its social cost, or keep the level of compliance unchanged while making tax administration more efficient

Number of Pages in PDF File: 66

Keywords: tax enforcement, tax compliance, tax shelters, deterrence, social norms, penalty default

JEL Classification: K19, K34, K42, H26

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Date posted: September 14, 2008 ; Last revised: June 19, 2009

Suggested Citation

Raskolnikov, Alex, Revealing Choices: Using Taxpayer Choice to Target Tax Enforcement (February 11, 2009). Columbia Law Review, May 2009; Columbia Law and Economics Working Paper No. 337. Available at SSRN: https://ssrn.com/abstract=1267622

Contact Information

Alex Raskolnikov (Contact Author)
Columbia University - Law School ( email )
435 West 116th Street
New York, NY 10025
United States

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