Combating Overreporting of Deductions in Tax Returns: Prefilling and Restricting the Deductibility of Expenditures

43 Pages Posted: 22 Jun 2020 Last revised: 17 Sep 2020

See all articles by Martin Fochmann

Martin Fochmann

Free University of Berlin

Frank Hechtner

Free University of Berlin (FUB)

Tobias Kölle

University of Cologne

Michael Overesch

Universität zu Köln

Date Written: September 17, 2020

Abstract

We experimentally analyze three anti-tax-evasion mechanisms: 1) prefilling of deductions in tax returns, 2) restricting tax evasion opportunities by either disallowing or 3) limiting the deductibility of expenditures. We find that prefilling compared to blank forms reduces tax evasion. Cutting the number of tax evasion opportunities by disallowing the deductibility of expenditure items is an ineffective mechanism to combat tax evasion as individuals shift their tax evasion activities from the disallowed item to other non-restricted items. In contrast, our results suggest that just limiting the deductibility of expenditures avoids this evasion-shift-effect and finally enhances overall tax compliance.

Keywords: Tax Compliance, Tax Evasion, Deductions, Pre-filled Tax Returns, Behavioral Economics

JEL Classification: C91, D90, H26, K42

Suggested Citation

Fochmann, Martin and Hechtner, Frank and Kölle, Tobias and Overesch, Michael, Combating Overreporting of Deductions in Tax Returns: Prefilling and Restricting the Deductibility of Expenditures (September 17, 2020). Available at SSRN: https://ssrn.com/abstract=3613568 or http://dx.doi.org/10.2139/ssrn.3613568

Martin Fochmann (Contact Author)

Free University of Berlin ( email )

Thielallee 73
Accounting and Taxation
Berlin, 14195
Germany

Frank Hechtner

Free University of Berlin (FUB) ( email )

Garystrasse 21
Berlin, Berlin 14195
Germany

Tobias Kölle

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Michael Overesch

Universität zu Köln ( email )

Albertus-Magnus-Platz
WiSo-Gebäude
Cologne, 50923
Germany
0221/470-5605 (Phone)

HOME PAGE: http://www.steuer.uni-koeln.de/

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