The Effect of Awareness and Incentives on Tax Evasion

42 Pages Posted: 4 Sep 2013  

Annette Alstadsæter

School of Economics and Business, NMBU; CESifo (Center for Economic Studies and Ifo Institute)

Martin Jacob

WHU - Otto Beisheim School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: August 30, 2013

Abstract

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.

Keywords: tax evasion, tax compliance, tax enforcement, tax awareness, detection

JEL Classification: H260, H240, D140

Suggested Citation

Alstadsæter, Annette and Jacob, Martin, The Effect of Awareness and Incentives on Tax Evasion (August 30, 2013). CESifo Working Paper Series No. 4369. Available at SSRN: https://ssrn.com/abstract=2319837

Annette Alstadsaeter

School of Economics and Business, NMBU ( email )

P.O. Box 5003
NO-1432 Aas
Norway

HOME PAGE: http://www.nmbu.no/emp/annette.alstadsater

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Martin Jacob (Contact Author)

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
D-56179 Vallendar, 56179
Germany

HOME PAGE: http://www.whu.edu/steuer

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