Audit Rate and Participant Pay Structure in Experimental Tax Research: A Review and Guide for Experimental Design

Abstract

We conduct a review of audit rate and pay structure design choices made in tax compliance experiments published since 1990. We find experimental audit rates are frequently, but not always, employed in experimental tax research, and vary among reviewed studies. Experimental research often requires paying participants, but participant pay schemes differ among reviewed studies. This study investigates how audit rate and pay structure design choices impact taxpayer compliance behavior. We use the findings of our literature review to motivate a 4 (audit rate: unstated, 1, 15, or 30 percent) x 2 (pay structure: flat or incentive) experiment to investigate how these design choices impact compliance. Results show compliance is higher when the experimental audit rate is stated (vs. unstated) and under a flat pay (vs. incentive pay) structure. We demonstrate that these design choices affect the statistical characteristics of response data and provide design guidance to researchers.

Keywords: audit rate, pay structure, expected utility, tax compliance, experimental design

JEL Classification: H24, H26, M41