Do Audits Matter?: A Parallax Theory of the Relation between Tax Enforcement and Underreporting
46 Pages Posted: 19 Nov 2014 Last revised: 20 Jan 2015
Date Written: 2015
Do audits affect individual tax compliance? This question is not new and multiple answers have been attempted over the past four decades. Those who have made such attempts have suffered from the impediment of an inability to test their theories against known, or even approximated, rates of underreporting on individual income tax returns. The first part of this paper develops a method for approximating the underreporting rate for individual income tax returns, since no such method currently exists. The second part uses this method to take a stab at answering the question whether audits affect tax underreporting rates.
Keywords: tax, tax law, taxation, probability, tax enforcement, tax compliance
JEL Classification: H24, H26, K34, K42, C00, C63
Suggested Citation: Suggested Citation