The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota

42 Pages Posted: 22 Jun 1999 Last revised: 25 Sep 2000

See all articles by Marsha Blumenthal

Marsha Blumenthal

University of St. Thomas - Department of Economics

Charles W. Christian

Arizona State University

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Date Written: May 1998

Abstract

This paper reports on the results of a controlled experiment in Minnesota in which a random sample of taxpayers was informed that their income tax returns would certainly be closely examined. We analyze reported income of this sample of taxpayers, reported income on their previous year's returns, and reported income from the two corresponding years' returns of a control group of taxpayers that did not receive the letter. We find that the treatment effect varies depending on the level of income. Low and middle income taxpayers increased reported income and tax liability relative to the control group, which we interpret as indicating the presence of noncompliance. The effect was much stronger for those with more opportunity' to evade, as measured by their source of income. However, the reported income of the high-income treatment group fell sharply relative to the control group. We suggest a model based on tax audits as a negotiation that can explain this apparently perverse result.

Suggested Citation

Blumenthal, Marsha and Christian, Charles W. and Slemrod, Joel B., The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota (May 1998). NBER Working Paper No. w6575. Available at SSRN: https://ssrn.com/abstract=160697

Marsha Blumenthal

University of St. Thomas - Department of Economics ( email )

St. Paul, MN 55105
United States

Charles W. Christian

Arizona State University ( email )

Tempe, AZ 85287-3606
United States
480-820-7016 (Phone)

Joel B. Slemrod (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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