Applying 'Benford's Law' to the Crosswise Model: Findings from an Online Survey on Tax Evasion

18 Pages Posted: 27 Aug 2014  

Thorben Christian Kundt

University of the German Federal Armed Forces - Department of Economics

Date Written: July 29, 2014

Abstract

Many surveys examining sensitive topics, such as tax evasion, suffer from the reluctance of respondents to provide truthful answers, which can cause downward-biased estimates. This paper addresses this problem by making use of a recent survey method (Crosswise Model, CM) designed to provide positive incentives for respondents to answer sensitive questions more truthfully. We extent CM by applying the so-called "Benford Illusion". Incorporating the "Benford Illusion" allows us to increase the precision of CM, which is less statistically efficient than other methods. To test the effectiveness of the model in providing privacy protection, we carried out an online survey in which the respondents were randomly allocated into two groups, which differed only in the questioning technique applied. Our results suggest that CM can help increase privacy protection compared to a simple direct questioning approach. As a consequence, survey estimates of tax evasion using the CM are likely to become more valid. At the same time, we demonstrate that were able to obtain an efficient estimator without substantially decreasing privacy protection, even for a relatively small sample size.

Keywords: tax evasion, survey methodology, Crosswise Model, Benford’s law

JEL Classification: C83, H26

Suggested Citation

Kundt, Thorben Christian, Applying 'Benford's Law' to the Crosswise Model: Findings from an Online Survey on Tax Evasion (July 29, 2014). Available at SSRN: https://ssrn.com/abstract=2487069 or http://dx.doi.org/10.2139/ssrn.2487069

Thorben Christian Kundt (Contact Author)

University of the German Federal Armed Forces - Department of Economics ( email )

Holstenhofweg 85
Hamburg, 22043
Germany

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