From the Lab to the Field: A Review of Tax Experiments

Mascagni, Giulia

doi:10.2139/ssrn.2776589

Cited by 43 publications

(65 citation statements)

References 52 publications

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“…(). Also, see Torgler () and Mascagni () for reviews that focus upon the use of experiments on tax compliance, including laboratory and field experiments.…”

Section: Type Of Income Net Misreporting Percentage (%) Percentage Ofmentioning

confidence: 99%

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What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

281

223

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In this paper, I review and assess what we have learned about what motivates individuals to pay -or to not pay -their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestionsand some predictions -for future research. 356 ALM measure of the individual's constant relative risk aversion. Using the definitions of I C and I N in equations (1) and (2), the expected utility maximization generated by the solution to equation (3) can be solved for the optimum amount of reported income R*. 9 Now suppose that R* is calculated for specific, realistic values of the various parameters. For example, if t = 0.4, f = 2, p = 0.02 and e = 1, then the individual will optimally report no income. Very large values for relative risk aversion are required to generate compliance consistent with actual country experience. When e = 3, reported income is only 14% of true income; when e = 5, it is still only 44%; when e = 10, it is 71%; and e must exceed 30 for compliance to exceed 90%. Even if the probability of detection is as (unrealistically) high as 30% (with t = 0.4 and f = 2), relative risk aversion must exceed 7 to generate compliance over 90%. However, existing field evidence on the coefficient of relative risk aversion using a variety of approaches suggests that e ranges between 1 and 2, and may even be as low as 0 (Friend and Blume, 1975;Hansen and Singleton, 1983;Hall, 1988;Chetty, 2006;Gandelman and Hernandez-Murillo, 2013). Risk aversion must be abnormally large for behaviour to be even roughly comparable to actual observed choices, even in many developing countries with low levels of compliance.Admittedly, there are reasons why this simplistic analysis somewhat overstates the problem with the standard expected utility approach. 10 Consider the United States as an example. First, a standard feature of many individual income tax systems is that a third party (e.g. the individual's employer) reports the relevant part of an individual's taxable income to the tax authority (and often also withholds income taxes on this reported taxable income). This third-party information increases significantly the chances that an individual who underreports income on a filed return will be detected, especially in its combination with employer source-withholding. 11 Second, the 'official' IRS audit rate somewhat understates 'actual' IRS audit policy. In fact, the IRS conducts a range of audits, and for many types of audits, the actual rates are quite high. Third and relatedly, while overall audit rates are quite low, among certain income and occupation classes, they are more frequent. Fourth, the IRS conducts a wide range of audit-type activities, including line matching and requests for information, and these activities are much more frequent. 12 Finally, it is individual perceptions of audit rates that influence behaviour, rather than...

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“…(). Also, see Torgler () and Mascagni () for reviews that focus upon the use of experiments on tax compliance, including laboratory and field experiments.…”

Section: Type Of Income Net Misreporting Percentage (%) Percentage Ofmentioning

confidence: 99%

“…See Torgler (), Alm and Jacobson () and Mascagni () for critical discussions of laboratory experiments. For earlier discussions, see Smith () and Roth ().…”

Section: Type Of Income Net Misreporting Percentage (%) Percentage Ofmentioning

confidence: 99%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

281

223

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“…Recent years have seen a lot of excitement around the idea of using "nudges" with the aim to improve individual behavior. Nudges are interventions that respect the freedom of choice and leave economic incentives intact (Benartzi et al 2017), 1 and they have been studied in many important policy areas such as taxation (Mascagni 2018), education (Dizon-Ross 2019), healthcare (Wisdom et al 2010), consumer behavior (Costa and Kahn 2013), among others.…”

Section: Introductionmentioning

confidence: 99%

“…Of course, an alternative and arguably a more thorough way of surveying the literature can be done through qualitative means. Many excellent literature reviews have been written, such as Alm (2019), Andreoni et al (1998), Slemrod (2007Slemrod ( , 2019, Slemrod and Yitzhaki (2002) on tax compliance generally, as well as Luttmer and Singhal (2014) on tax morale, Mascagni (2018) on tax experiments and Pomeranz and Vila-Belda (2019) on tax capacity, more specifically. We extend this literature by performing a systematic empirical analysis of nudging interventions.…”

Section: Introductionmentioning

confidence: 99%

Nudging for Tax Compliance: A Meta-Analysis

Antinyan

Asatryan

2019

SSRN Journal

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Taxpayer nudges-behavioral interventions that aim to increase tax compliance without changing the underlying economic incentives of taxpayers-are used increasingly by governments because of their potential cost-effectiveness in raising tax revenue. We collect about a thousand treatment effect estimates from over 40 randomized controlled trials, and in a meta-analytical framework show that non-deterrence nudges-interventions pointing to elements of individual tax morale-are on average ineffective in curbing tax evasion, while deterrence nudges-interventions emphasizing traditional determinants of compliance such as audit probabilities and penalty rates-are potent catalysts of compliance. These effects are, however, fairly small in magnitude. Deterrence nudges increase the probability of compliance by only 1.5-2.5 percentage points more than non-deterrence nudges, while the effects are likely to be bound to the short-run, and are somewhat inflated by selective reporting of results.

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“…These include Carrillo, Pomeranz, and Singhal (2014) and Pomeranz (2015) who use taxpayer register data from Ecuador and Chile and combine these data with a eld or natural experiment to examine how evasion can be combated. Therefore, the focus in this experimental type of work, which is surveyed by Mascagni (2014), is dierent: rather than studying more conventional sucient statistics for determining the overall welfare impacts as the current paper does, they concentrate on avoidance and evasion. There is no doubt that experimental evidence on possibilities to inuence evasion is of key importance, but it remains equally useful, we would argue, to simply know more about the overall extent of distortions that current tax systems create.…”

Section: Introductionmentioning

confidence: 99%

How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers

et al. 2017

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This study has been prepared within the UNU-WIDER project on 'Firm-and Industry-level Analysis in South Africa', which is part of a larger research project on 'Regional Growth and Development in Southern Africa'. Terms of use: Documents in Copyright © UNU-WIDER 2016Information and requests: publications@wider.unu.edu ISSN 1798-7237 ISBN 978-92-9256-079-9 Typescript prepared by the Authors.The United Nations University World Institute for Development Economics Research provides economic analysis and policy advice with the aim of promoting sustainable and equitable development. The Institute began operations in 1985 in Helsinki, Finland, as the first research and training centre of the United Nations University. Today it is a unique blend of think tank, research institute, and UN agency-providing a range of services from policy advice to governments as well as freely available original research.UNU-WIDER acknowledges specific programme contribution from the National Treasury of South Africa to its project 'Regional Growth and Development in Southern Africa' and core financial support to its work programme from the governments of Denmark, Finland, Sweden, and the United Kingdom. Katajanokanlaituri 6 B, 00160 Helsinki, FinlandThe views expressed in this paper are those of the author(s), and do not necessarily reflect the views of the Institute or the United Nations University, nor the programme/project donors. Abstract:In this paper we study the effects of various tax schedule discontinuities on the behavior of small firms using high-quality and population-wide tax register data from South Africa. We use the bunching method to analyse how these discontinuities affect the firm-size distribution. We first examine how the value-added tax threshold affects the sales distribution of firms. We also study the effects of two separate corporate income tax rate kinks. We find sizable bunching at each of these thresholds. The elasticity estimates for the corporate tax kink points are large, ranging from 0.7 to 1.6, whereas the elasticity of the value added is below 0.1. We find some suggestive evidence that part of the response is driven by tax evasion.

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From the Lab to the Field: A Review of Tax Experiments

Cited by 43 publications

References 52 publications

What Motivates Tax Compliance?

What Motivates Tax Compliance?

Nudging for Tax Compliance: A Meta-Analysis

How Do Small Firms Respond to Tax Schedule Discontinuities? Evidence from South African Tax Registers

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