Compliance with Endogenous Audit Probabilities

32 Pages Posted: 4 Aug 2015

See all articles by Kai A. Konrad

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research); IZA Institute of Labor Economics

Tim Lohse

Berlin School of Economics and Law; Max Planck Institute for Tax Law and Public Finance

Salmai Qari

German Institute for Economic Research (DIW Berlin); Berlin School of Economics and Law

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Date Written: July 2015

Abstract

This paper studies the effect of endogenous audit probabilities on reporting behavior in a face-to-face compliance situation such as at customs. In an experimental setting in which underreporting has a higher expected payoff than truthful reporting we find an increase in compliance of about 80% if subjects have reason to believe that their behavior towards an officer influences their endogenous audit probability. Higher compliance is driven by considerations about how own appearance and performance affect their audit probability, rather than by social and psychological effects of face-to-face contact.

Keywords: Compliance, audit probability, tax evasion, face value, customs

JEL Classification: H26, H31, C91, K42

Suggested Citation

Konrad, Kai A. and Lohse, Tim and Qari, Salmai, Compliance with Endogenous Audit Probabilities (July 2015). DIW Berlin Discussion Paper No. 1493, Available at SSRN: https://ssrn.com/abstract=2639086 or http://dx.doi.org/10.2139/ssrn.2639086

Kai A. Konrad

Max Planck Institute for Tax Law and Public Finance ( email )

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/home.cfm

Centre for Economic Policy Research (CEPR)

90-98 Goswell Road
London, EC1V 7RR
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, 81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, 53072
Germany

Tim Lohse (Contact Author)

Berlin School of Economics and Law ( email )

Badensche Strasse 50-51
Berlin, D-10825
Germany

HOME PAGE: http://www.hwr-berlin.de/en/prof/tim-lohse

Max Planck Institute for Tax Law and Public Finance

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/public_economics/research_affiliates/tim_lohse.cfm

Salmai Qari

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Berlin School of Economics and Law ( email )

Badensche Strasse 50-51
Berlin, D-10825
Germany

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