Information Matters in Tax Enforcement

74 Pages Posted: 31 Jan 2019 Last revised: 26 Aug 2020

See all articles by Leandra Lederman

Leandra Lederman

Indiana University Maurer School of Law

Joseph Dugan

Indiana University Maurer School of Law

Date Written: December 21, 2019

Abstract

Most legal and economics scholars recognize both that the government needs information about taxpayers’ transactions in order to determine whether their reporting is honest, and that third-party reporting helps the government obtain that information. Given governments’ reliance on tax funds, it is risky to think that information or third-party reporting is not needed by tax agencies. However, a recent article by Professor Wei Cui asserts that “modern governments can practice ‘taxation without information.’” Professor Cui’s argument rests on two premises: (1) “giving governments effective access to taxpayer information through third parties does not explain the success of modern tax administration” because, he argues, some important taxes, such as the value added tax (VAT), do not involve information reporting; and (2) modern tax administration succeeds because business firms are “sites of social cooperation under the rule of law,” fostering compliance. As this Article explains, the literature demonstrates that both arguments are mistaken. That is, it shows that third-party information reporting is highly effective, information sharing is used to enforce VATs, and firms are not inherently compliant. In fact, where individuals report on firms, firms’ compliance increases, which supports the intuitive notion that third-party reporting increases tax compliance and that information accordingly matters in tax enforcement.

Keywords: third-party reporting, information reporting, TPIR, tax compliance, tax enforcement, tax evasion, VATs, value-added taxes, small firms, large firms, firm compliance, firm honesty, corporate compliance, corporate honesty

JEL Classification: G38, H26, H32, K22, K34, K42, L21, M14, M48

Suggested Citation

Lederman, Leandra and Dugan, Joseph, Information Matters in Tax Enforcement (December 21, 2019). 2020 B.Y.U. L. Rev. __ (Forthcoming 2020), Brigham Young University Law Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3325598 or http://dx.doi.org/10.2139/ssrn.3325598

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

Joseph Dugan

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
202
Abstract Views
1,743
rank
167,779
PlumX Metrics