Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-Employed Taxpayers

23 Pages Posted: 21 Nov 2019

See all articles by Sebastian Beer

Sebastian Beer

International Monetary Fund (IMF)

Matthias Kasper

University of Vienna; Tulane University

Erich Kirchler

University of Vienna - Faculty of Psychology

Brian Erard

B. Erard & Associates

Date Written: October 2019

Abstract

This paper employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior. Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects. Among those taxpayers who receive an additional tax assessment, reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit. In contrast, among those taxpayers who do not receive an additional tax assessment, reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place. Our results suggest that improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections.

Keywords: Tax revenue, Audit process, Tax auditing, Tax returns, Tax evasion, small business taxpayers, CIT audit, impact evaluation, WP, taxpayer, control variable, reported income, Ratto, treatment effect

JEL Classification: H25, H26, H2, M42, E01, H83, H71

Suggested Citation

Beer, Sebastian and Kasper, Matthias and Kirchler, Erich and Erard, Brian, Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-Employed Taxpayers (October 2019). IMF Working Paper No. 19/223, Available at SSRN: https://ssrn.com/abstract=3491246

Sebastian Beer (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Matthias Kasper

University of Vienna

Universitätsstraße 7
Vienna, Vienna 1010
Austria

Tulane University ( email )

New Orleans, LA 70118
United States

Erich Kirchler

University of Vienna - Faculty of Psychology ( email )

Universitaetsstrasse 7
Vienna, A-1010
Austria
+43 1 42 7747332 (Phone)
+43 1 42 7747339 (Fax)

HOME PAGE: http://homepage.univie.ac.at/erich.kirchler

Brian Erard

B. Erard & Associates ( email )

2350 Swaps Ct.
Reston, VA 20191
United States

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