A Structural Equation Model for Tax Compliance and Auditing

39 Pages Posted: 9 Mar 2004 Last revised: 28 Jun 2010

See all articles by Kurt J. Beron

Kurt J. Beron

University of Texas at Dallas - Department of Economics & Finance; National Bureau of Economic Research (NBER)

Helen Tauchen

University of North Carolina (UNC) at Chapel Hill - Department of Economics; National Bureau of Economic Research (NBER)

Ann Dryden Witte

Wellesley College - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: April 1988

Abstract

In this paper. we estimate a three equation model for taxpayers' reported income and tax liability and for the probability of an audit. Our work differs from previous studies in that our dependent variables in the compliance equations are taxpayer reports rather than a variable related to auditor estimates of noncompliance and in that we estimate a structural equation for audits. We find that audits stimulate compliance although the effect is not large and is not statistically significant for all groups. Audits are more effective at inducing accurate reporting of subtractions from income than of income. Reduced-form results suggest that IRS activities other than audits have significant compliance effects. Results for the sociodemographic variables are interesting and help to explain some seemingly incongruous findings in the literature. We find compliance to be higher, if anything. in areas with less educated and older taxpayers, a large proportion of households headed by females. and a mostly native born population.

Suggested Citation

Beron, Kurt J. and Tauchen, Helen V. and Dryden Witte, Ann, A Structural Equation Model for Tax Compliance and Auditing (April 1988). NBER Working Paper No. w2556, Available at SSRN: https://ssrn.com/abstract=425580

Kurt J. Beron (Contact Author)

University of Texas at Dallas - Department of Economics & Finance ( email )

Richardson, TX 75083
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Helen V. Tauchen

University of North Carolina (UNC) at Chapel Hill - Department of Economics ( email )

Chapel Hill, NC 27599
United States
919-966-2384 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ann Dryden Witte

Wellesley College - Department of Economics ( email )

106 Central Street
Wellesley, MA 02181
United States
781-283-2163 (Phone)
781-283-2177 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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