Alchian and Allen Visit the IRS: Costly Audits and Taxpayer Compliance

10 Pages Posted: 1 Feb 2012

See all articles by Calvin Blackwell

Calvin Blackwell

College of Charleston - School of Business

Michael McKee

Appalachian State University - Department of Economics

Date Written: January 30, 2012

Abstract

This note reports on the results from a small scale investigation of the compliance effects of a costly pre-audit on tax compliance. The tax compliance game is modeled in three parts: a declaration phase, a pre-selection phase with a cost for taxpayers, and an audit selection phase where all evaded income is discovered. While the theoretical predictions are ambiguous, the data from a series of laboratory experiments demonstrate that the presence of pre-audit costs leads to lower tax compliance.

Keywords: tax evasion, tax compliance, experiment, audit, audit cost

JEL Classification: H26, C91

Suggested Citation

Blackwell, Calvin and McKee, Michael, Alchian and Allen Visit the IRS: Costly Audits and Taxpayer Compliance (January 30, 2012). Available at SSRN: https://ssrn.com/abstract=1995801 or http://dx.doi.org/10.2139/ssrn.1995801

Calvin Blackwell (Contact Author)

College of Charleston - School of Business ( email )

Department of Economics
66 George Street
Charleston, SC 29424
United States
843-953-7836 (Phone)
843-953-5697 (Fax)

Michael McKee

Appalachian State University - Department of Economics ( email )

Boone, NC 28608
United States

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