The Effect of Audit Activity on Tax Declaration

Abstract

This article provides an empirical contribution to deterrence analysis by evaluating the effect of tax audits on compliance taxpayer behaviors over the 2004 to 2009 period. We use two unique databases: the Tax Return Register (Anagrafe Tributaria) and Italian Revenue Agency (IRA) audits data, with a focus on self-employment and sole proprietorships. The difference-in-differences approach has been applied as estimation strategy to evaluate the effect of three IRA audit policies: on-site audit (i.e., soft audit), desk audit (i.e., deep audit), and a combination of on-site and desk audit activities. Our results show an overall positive effect of tax audits in terms of deterrence. In particular, the contemporaneous presence of soft and deep audits has the greatest effect on compliance reporting behaviors. Moreover, on-site audits show greater effects compared to desk audit activities. Reasons can be found in different purposes for which various policies are designed.

Impact of a Previous Audit on Tax Aggressiveness of a Firm Taxpayer

“…In other words, audit experience in the past would encourage taxpayers to be more neutral. This is consistent with Niu (2011) andD'Agosto et al (2017) studies who found that audit experience in the past has a negative effect on tax aggressiveness. Despite submitted AOTR, taxpayers tend to reduce their tax aggressiveness if they had been audited previously.…”

“…Or it could be said that an audit which detects a problem and followed by penalty would encourage taxpayers to be less aggressive. This is consistent with Niu (2011), Debacker et al (2015) andD'Agosto et al (2017) studies who found that audits could have a negative impact on tax aggressiveness.…”

“…Or it could be said that an audit which detects a problem would still encourage taxpayers to be less aggressive. This is consistent with Niu (2011), Debacker et al (2015) andD'Agosto et al (2017) studies who found that audits can have a negative JDEP Jurnal Dinamika Ekonomi Pembangunan https://ejournal.undip.ac.id/index.php/dinamika_pembangunan/index impact on tax aggressiveness. Thus, it can be concluded that if audit had been held right before taxpayers submitted AOTR and resulted in problem detection, would encourage taxpayers to be less aggressive even if it is not followed with a penalty.…”

“…Following the experimental method, the studies about the impact of a previous audit on tax aggressiveness started to use econometrics. These study conduct by Niu (2011), D'Agosto et al (2017, Gemmel and Rato (2012) and Debacker et al (2015). Niu (2011) used OLS and Auto Regressive as analysis tools.…”

“…Niu (2011) used OLS and Auto Regressive as analysis tools. While D'Agosto et al (2017) and Gemmel and Ratto (2012) used DID. The result of their research found that tax aggressiveness decreases after an audit.…”