Compliance Effects of Risk-Based Tax Audits

30 Pages Posted: 9 May 2019

See all articles by Knut Løyland

Knut Løyland

Norwegian Tax Administration

Oddbjorn Raaum

University of Oslo - Ragnar Frisch Centre for Economic Research

Gaute Torsvik

University of Bergen - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Arnstein Øvrum

Norwegian Tax Administration

Date Written: 2019

Abstract

Tax administrations use machine learning to predict risk scores as a basis for selecting individual taxpayers for audit. Audits detect noncompliance immediately, but may also alter future filing behavior. This analysis is the first to estimate compliance effects of audits among high-risk wage earners. We exploit a sharp audit assignment discontinuity in Norway based on individual tax payers risk score. Additional data from a random audit allow us to estimate how the audit effect vary across the risk score distribution. We show that the current risk score audit threshold is set far above the one that maximizes net public revenue.  

Keywords: tax audits, tax revenue, tax reporting decisions, income tax, machine learning, risk profiling

JEL Classification: D040, H260, H830

Suggested Citation

Løyland, Knut and Raaum, Oddbjørn and Torsvik, Gaute and Øvrum, Arnstein, Compliance Effects of Risk-Based Tax Audits (2019). CESifo Working Paper No. 7616. Available at SSRN: https://ssrn.com/abstract=3384307

Knut Løyland (Contact Author)

Norwegian Tax Administration ( email )

Oslo
Norway

Oddbjørn Raaum

University of Oslo - Ragnar Frisch Centre for Economic Research ( email )

Gaustadalleen 21
N-0317 Oslo
Norway

Gaute Torsvik

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
55589225 (Phone)
55589210 (Fax)

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

Poschinger Str. 5
Munich, DE-81679
Germany

Arnstein Øvrum

Norwegian Tax Administration ( email )

Oslo
Norway

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