Does Enforcement Reduce Voluntary Tax Compliance?

75 Pages Posted: 15 Aug 2018 Last revised: 9 Jan 2019

See all articles by Leandra Lederman

Leandra Lederman

Indiana University Maurer School of Law

Date Written: December 2018

Abstract

Governments generally use enforcement methods, such as audits and the imposition of penalties, to deter noncompliance with tax laws. Although this approach is consistent with most economic modeling of tax compliance, some scholars caution that enforcement may backfire, “crowding out” taxpayers’ intrinsic motivations to pay taxes to such an extent that they reduce their tax payments. This article analyzes the existing evidence to determine if this occurs. In fact, field studies suggest that enforcement tools, such as audits, are effective deterrents, generally greatly increasing tax collections. A few recent studies have found that audits have a negative effect on the subsequent tax payments of those found compliant on audit. This outcome, while perhaps initially surprising, is consistent with the deterrence model: a favorable outcome after audit may lower the audited taxpayer’s perceived likelihood of subsequent audit and the perceived magnitude of the sanction.

Keywords: tax compliance, tax evasion, deterrence, enforcement, crowding out, bomb-crater effect, tax morale

JEL Classification: H20, H26, H30, K34, K42

Suggested Citation

Lederman, Leandra, Does Enforcement Reduce Voluntary Tax Compliance? (December 2018). 2018 Brigham Young University Law Review 627; Indiana Legal Studies Research Paper No. 395. Available at SSRN: https://ssrn.com/abstract=3222803

Leandra Lederman (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States
(812) 855-6149 (Phone)
(812) 855-0555 (Fax)

HOME PAGE: http://www.law.indiana.edu/people/lederman

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