Under the Radar: The Effects of Monitoring Firms on Tax Compliance

Almunia, Miguel; López-Rodríguez, David

doi:10.1257/pol.20160229

Cited by 104 publications

(86 citation statements)

References 40 publications

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“…Our framework provides a micro-foundation for the idea that firms may understate overall economic activity to "fly under the radar" of tax or other regulatory authorities (Almunia and Lopez-Rodriguez 2015). To the extent that firms do not have incentives to fully declare costs, the self-enforcement mechanism in the VAT can be undermined (see, e.g., Keen and Smith 2006).…”

Section: Discussionmentioning

confidence: 99%

“…Third-party information is central to modern tax collection in developed countries (Kleven, Kreiner, and Saez 2016), and the global revolution in information technology has made its application easier than ever before. 1 Improvements in third-party carrillo et al: dodging the taxman information would appear to have the potential to transform tax collection, particularly in developing economies. In practice, however, the effectiveness of third-party reporting in developing economies may be limited along two dimensions.…”

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confidence: 99%

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Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

Carrillo

Pomeranz

Singhal

2017

American Economic Journal: Applied Economics

174

127

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Section: Discussionmentioning

confidence: 99%

mentioning

confidence: 99%

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

Carrillo

Pomeranz

Singhal

2017

American Economic Journal: Applied Economics

174

127

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“…(), Mendoza et al . () and Almunia and Lopez‐Rodriguez (). For some empirical work using controlled field experiments, including studies of individuals and of firms, see Slemrod et al .…”

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

confidence: 99%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

286

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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“…We identify the causal impact of the SGA threshold on the extensive margin decision by exploiting a policy change that relaxed earnings restrictions significantly. Since the change in law affected only a subsect of DI beneficiaries, we can estimate 3 Recent studies relying on notches in the budget set examine such diverse topics as earnings adjustments to income and payroll taxes (Kleven and Waseem 2013;Tazhitdinova 2017), automaker responses to fuel economy regulations (Sallee and Slemrod 2012;Ito and Sallee 2016), the impact of transfer taxes on the real estate market (Kopczuk and Munroe, 2015;Best and Kleven, 2016), the effect of tax credits on retirement savings and income (Ramnath, 2013), the labor supply effects of social security (Brown, 2013;Manoli and Weber, 2016), and firm responses to stricter tax enforcement (Almunia and Lopez Rodriguez, 2017). See Kleven (2016) for a review of the bunching approach and the related literature.…”

Section: Introductionmentioning

confidence: 99%

Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design

Ruh¹,

Staubli

2018

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Most countries reduce Disability Insurance (DI) benefits for beneficiaries earning above a specified threshold. Such an earnings threshold generates a discontinuous increase in tax liability -a notch-and creates an incentive to keep earnings below the threshold. Exploiting such a notch in Austria, we provide transparent and credible identification of the effect of financial incentives on DI beneficiaries' earnings. Using rich administrative data, we document large and sharp bunching at the earnings threshold. However, the elasticity driving these responses is small. Our estimate suggests that relaxing the earnings threshold reduces fiscal cost only if program entry is very inelastic.

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Under the Radar: The Effects of Monitoring Firms on Tax Compliance

Cited by 104 publications

References 40 publications

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement

What Motivates Tax Compliance?

Financial Incentives and Earnings of Disability Insurance Recipients: Evidence from a Notch Design

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