Audit Information Dissemination, Taxpayer Communication, and Compliance Behavior

34 Pages Posted: 19 Apr 2006

See all articles by James Alm

James Alm

Tulane University

Betty R. Jackson

University of Colorado at Boulder - Department of Accounting

Michael McKee

Appalachian State University - Department of Economics

Date Written: April 2006

Abstract

Taxpayer audits are a central feature of the voluntary compliance system in the United States federal individual income tax. Audits are thought to have a direct deterrent effect on the individuals actually audited. Audits are also believed to have an indirect deterrent effect on individuals not audited, and in fact there is some empirical evidence that audit rates affect compliance beyond the audited individuals themselves. However, empirical studies cannot measure or control for taxpayer awareness of audit risk, and they also cannot uncover the behavioral channels through which the direct and indirect effects operate; that is, the ways in which taxpayers learn about - and communicate among themselves - audit rates, and the subsequent effects on compliance, are not known and cannot be discovered by empirical studies. In this study, we use laboratory experiments to examine several types of information dissemination and taxpayer communication about audit frequency and audit results. These experiments allow us to test hypotheses about the effects of two types of communication of audit policies and results, in order to explore the direct and the indirect effects of audits: "official" information disseminated by the "government" (e.g., the experimenter) and "unofficial", or informal, communications among "taxpayers" (e.g., the subjects). Our results indicate that "unofficial" communications have a strong indirect effect on compliance: messages that indicate that a subject was not audited or was able to cheat actually reduce compliance, while messages that a subject was audited or paid his or her taxes increase compliance. Also, "official" announcements of information may not always encourage voluntary compliance.

JEL Classification: C91, H24

Suggested Citation

Alm, James and Jackson, Betty R. and McKee, Michael, Audit Information Dissemination, Taxpayer Communication, and Compliance Behavior (April 2006). Andrew Young School of Policy Studies Research Paper No. 06-44, Available at SSRN: https://ssrn.com/abstract=897348 or http://dx.doi.org/10.2139/ssrn.897348

James Alm (Contact Author)

Tulane University ( email )

United States
5048628344 (Phone)

Betty R. Jackson

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States

Michael McKee

Appalachian State University - Department of Economics ( email )

Boone, NC 28608
United States

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