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

See all articles by Jack Manhire

Jack Manhire

Texas A&M University School of Innovation; Bush School of Government & Public Service

Date Written: 2015

Abstract

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

Manhire, Jack, Do Audits Matter?: A Parallax Theory of the Relation between Tax Enforcement and Underreporting (2015). Available at SSRN: https://ssrn.com/abstract=2526417 or http://dx.doi.org/10.2139/ssrn.2526417

Jack Manhire (Contact Author)

Texas A&M University School of Innovation

1249 TAMU
College Station, TX 77843-1249
United States

Bush School of Government & Public Service ( email )

4220 TAMU
College Station, TX 76845
United States

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