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
Date Written: September 17, 2020
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: Suggested Citation