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The dynamic effects of tax audits
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Advani, Arun, Elming, William and Shaw, Jonathan (2021) The dynamic effects of tax audits. The Review of Economics and Statistics . doi:10.1162/rest_a_01101 (In Press)
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WRAP-dynamic-effects-tax-audits-Advani-2021.pdf - Accepted Version - Requires a PDF viewer. Download (1517Kb) | Preview |
Official URL: https://doi.org/10.1162/rest_a_01101
Abstract
We study the effects of audits on long run compliance behaviour, using a random audit program covering more than 53,000 tax returns. We find that audits raise reported tax liabilities for five years after audit, effects are longer lasting for more stable sources of income, and only individuals found to have made errors respond to audit. 60-65% of revenue from audit comes from the change in reporting behaviour. Extending the standard model of rational tax evasion, we show these results are best explained by information revealed by audits constraining future misreporting. Together these imply that more resources should be devoted to audits, audit targeting should account for reporting responses, and performing audits has additional value beyond merely threatening them.
| Item Type: | Journal Article | ||||||
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| Subjects: | H Social Sciences > HF Commerce | ||||||
| Divisions: | Faculty of Social Sciences > Economics | ||||||
| Library of Congress Subject Headings (LCSH): | Tax auditing, Income tax, Financial statements | ||||||
| Journal or Publication Title: | The Review of Economics and Statistics | ||||||
| Publisher: | MIT Press | ||||||
| ISSN: | 0034-6535 | ||||||
| Official Date: | 22 September 2021 | ||||||
| Dates: |
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| DOI: | 10.1162/rest_a_01101 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | In Press | ||||||
| Publisher Statement: | This is the author’s final version, and that the article has been accepted for publication in Review of Economics and Statistics | ||||||
| Access rights to Published version: | Open Access | ||||||
| Copyright Holders: | © 2021 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology | ||||||
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