Third-Party Income Reporting and Income Tax Compliance

33 Pages Posted: 10 Apr 2006

See all articles by James Alm

James Alm

Tulane University

John A. Deskins

Creighton University - Department of Economics

Michael McKee

Appalachian State University - Department of Economics

Date Written: March 2006

Abstract

Individuals whose income is not reported to the tax authority by a third party (e.g., the self-employed and those earning casual wages such as tips) may be less likely to be detected evading taxes relative to the case in which they are subject to third-party reporting. However, the compliance response is not known, in part because of the difficulty in obtaining information on individual choices in these situations. We use experimental methods to examine individual income tax compliance in settings where a portion of an individual's income is relatively difficult to detect upon audit by the tax authority, due to the absence of third-party information. Our results indicate that tax compliance rates decline as individuals earn larger shares of income that is not perfectly detectable. Our results also indicate that tax compliance rates decline with higher income, lower audit rates, and higher tax rates.

JEL Classification: H2, H26, C9

Suggested Citation

Alm, James and Deskins, John and McKee, Michael, Third-Party Income Reporting and Income Tax Compliance (March 2006). Andrew Young School of Policy Studies Research Paper Series No. 06-35, Available at SSRN: https://ssrn.com/abstract=895344 or http://dx.doi.org/10.2139/ssrn.895344

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

John Deskins

Creighton University - Department of Economics ( email )

College of Business Administration
2500 California Place
Omaha, NE 68178
United States

Michael McKee

Appalachian State University - Department of Economics ( email )

Boone, NC 28608
United States

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