Combating Tax Evasion of Individuals: Prefilling and Restricting the Deductibility of Expenditures in Tax Returns
38 Pages Posted: 22 Jun 2020
Date Written: May 28, 2020
We experimentally analyze three anti-tax-evasion mechanisms:
1) pre-filling of deductions in tax returns,
2) restricting tax evasion opportunities by either disallowing or
3) limiting the deductibility of expenditures.
We find that pre-filling 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 reduce tax evasion as individuals shift their tax evasion activities from the disallowed item to other non-restricted items. In contrast, we find 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: Suggested Citation