scholarly journals PROSPECT THEORY AND TAX COMPLIANCE: A MICROFOUNDED EQUILIBRIUM PERSPECTIVE

2019 ◽  
pp. 177-198
Author(s):  
Maria Carmela APRILE ◽  
Francesco BUSATO ◽  
Francesco GIULI ◽  
Enrico MARCHETTI
Keyword(s):  
Prospect Theory ◽  
Tax Evasion ◽  
Tax Compliance ◽  
The United States ◽  
Individual Choice ◽  
Tax Rate ◽  
Empirical Estimates ◽  
Open Questions ◽  
United States Economy ◽  
Compliance Decisions

This paper discusses the capabilities of a class of microfounded equilibrium models, augmented with Prospect Theory elements in the spirit of al- Nowaihi and Dhami (2007), to address several open questions in the analysis of tax evasion and compliance decisions. There are three main results: i) there exists a unique equilibrium with a tax evasion, consistent with the empirical estimates for the United States economy; ii) the model predicts a positive relationship between tax rate and evasion rate, while offering a solution to the so called Yitzhaki puzzle; iii) the «framing effect» plays a significant role in supporting these results; this is a distinctive characterstic of this class of model, typically not present in simple individual choice models. Furthermore, the model also allows us to investigate some potentially relevant effects of labor supply behavior on the tax compliance decisions.

scholarly journals Information processing in tax decisions: A MouselabWEB study on the Allingham and Sandmo model of income tax evasion

2020 ◽  
Author(s):  
Christoph Kogler ◽  
Jerome Olsen ◽  
Martin Müller ◽  
Erich Kirchler
Keyword(s):  
Tax Evasion ◽  
Information Acquisition ◽  
Income Tax ◽  
Tax Compliance ◽  
Relevant Information ◽  
Expected Value ◽  
Decision Under Uncertainty ◽  
Tax Rate ◽  
Compliance Decisions ◽  
Expected Values

The highly influential Allingham and Sandmo model of income tax evasion framed the decision whether to comply or to evade taxes as a decision under uncertainty, assuming that taxpayers are driven by utility-maximization. Accordingly, they should choose evasion over compliance if it yields a higher expected profit. We test the main assumptions of this model considering both compliance decisions and the process of information acquisition applying MouselabWEB. In an incentivized experiment, 109 participants made 24 compliance decisions with varying information presented for four within-subject factors (income, tax rate, audit probability, and fine level). Additional explicit expected value information was manipulated between-subjects. The results reveal that participants attended to all relevant information, a prerequisite for expected value like calculations. As predicted by the Allingham and Sandmo model, choices were clearly influenced by deterrence parameters. Against the assumptions, these parameters were not integrated adequately, as evasion did not increase with rising expected rate of return. More transitions between information necessary for calculating expected values did not result in higher model conformity, just as presenting explicit information on expected values. We conclude that deterrence information clearly influences tax compliance decisions in our setting, but observed deviations from the model can be attributed to failure to integrate all relevant parameters.

scholarly journals Tax Morale

2014 ◽  
Vol 28 (4) ◽  
pp. 149-168 ◽  
Author(s):  
Erzo F. P. Luttmer ◽  
Monica Singhal
Keyword(s):  
Tax Evasion ◽  
Tax Policy ◽  
Field Experiments ◽  
Tax Compliance ◽  
Natural Experiments ◽  
Tax Morale ◽  
Tax Rate ◽  
Key Policy ◽  
Compliance Decisions ◽  
Underlying Mechanisms

There is an apparent disconnect between much of the academic literature on tax compliance and the administration of tax policy. In the benchmark economic model, the key policy parameters affecting tax evasion are the tax rate, the detection probability, and the penalty imposed conditional on the evasion being detected. Meanwhile, tax administrators also tend to place a great deal of emphasis on the importance of improving “tax morale,” by which they generally mean increasing voluntary compliance with tax laws and creating a social norm of compliance. We will define tax morale broadly to include nonpecuniary motivations for tax compliance as well as factors that fall outside the standard, expected utility framework. Tax morale does indeed appear to be an important component of compliance decisions. We demonstrate that tax morale operates through a variety of underlying mechanisms, drawing on evidence from laboratory studies, natural experiments, and an emerging literature employing randomized field experiments. We consider the implications for tax policy and attempt to understand why recent interventions designed to improve morale, and thereby compliance, have had mixed results to date.

Introduction

2018 ◽  
Author(s):  
Sven H. Steinmo
Keyword(s):  
United States ◽  
Tax Evasion ◽  
Tax Compliance ◽  
The United States ◽  
Tax Revenue ◽  
State Institutions ◽  
Political Cultures ◽  
History Of ◽  
The Government ◽  
Treat All

Why are some people more willing to pay their taxes than others? In some countries the government is able to collect more than 90% of the taxes it is owed, while in other countries more than 30% of tax revenue goes missing due to tax evasion. This book explores this question by examining the fiscal history of five different democratic nations: Sweden, Britain, Italy, the United States, and Romania. This chapter introduces the book and draws out the central themes introduced in the substantive chapters. Drawing on these rich historical chapters, the introduction shows that successful states have developed strong administrative capacities, treat all taxpayers fairly, and deliver value for the monies they collect. This chapter argues that differences in tax compliance across countries is not explained by different political cultures, but is instead explained by differences in the efficacy of state institutions and the ways they have interacted with their citizens.

ADVANCE TAX PAYMENT AND TAX EVASION: EXPECTED UTILITY ANALYSIS

2014 ◽  
Vol 59 (02) ◽  
pp. 1450014 ◽  
Author(s):  
KEISUKE MORITA
Keyword(s):  
Theoretical Analysis ◽  
Prospect Theory ◽  
Expected Utility ◽  
Tax Evasion ◽  
Utility Theory ◽  
Empirical Finding ◽  
Expected Utility Theory ◽  
Utility Analysis ◽  
Tax Rate ◽  
Tax Payments

The traditional theoretical analysis of tax evasion fails to explain the empirical finding that declared income decreases with the tax rate. We show that one of the reasons for this result is that many such studies overlook advance tax payments in their analyses. Furthermore, we investigate how advance tax payments influence the extent of tax evasion. We conclude that the influence of advance tax payments on the extent of tax evasion depends on whether an individual's preference is based on expected utility theory or prospect theory.

Revenue Enhancement through Increased Motor Fuel Tax Enforcement

1996 ◽  
Vol 1558 (1) ◽  
pp. 67-73
Author(s):  
Stephen J. Baluch
Keyword(s):  
Diesel Fuel ◽  
Tax Evasion ◽  
Motor Fuel ◽  
Tax Compliance ◽  
Fiscal Year ◽  
Federal State ◽  
Tax Enforcement ◽  
Joint Project ◽  
Tax Rate ◽  
Fuel Tax

The development of the FHWA fuel tax compliance program is described, and estimates of additional motor fuel tax revenues generated by enforcement programs are presented. Substantial revenue losses caused by motor fuel tax evasion schemes were discovered in the mid-1980s. Since 1986, the Internal Revenue Service and FHWA have worked cooperatively to reduce fuel tax evasion by supporting changes in tax collection procedures and additional enforcement resources. Since fiscal year 1990, FHWA has provided funding to supplement state and IRS fuel tax enforcement resources under the auspices of the Joint Federal/State Motor Fuel Tax Compliance Project (joint project). The Intermodal Surface Transportation Efficiency Act of 1991 provided $5 million annually through 1997 for the joint project. Enforcement activities directly contribute hundreds of millions of dollars to the Highway Trust Fund (HTF) and state transportation funds, a yield estimated at $10 to $18 per dollar spent on these programs. Furthermore, the Omnibus Budget Reconciliation Act of 1993 moved the incidence of the federal excise tax on diesel fuel to the point of removal from bulk storage at the terminal and required tax-exempt diesel fuel to be dyed. The HTF revenue from the diesel fuel tax has increased more than $1 billion in the year since these changes went into effect on January 1, 1994, net of the tax rate increases also enacted in 1993. Some $600 million to $700 million of this increase has been estimated to be the result of improved compliance.

Hard-Earned Income and Tax Compliance

2008 ◽  
Vol 13 (4) ◽  
pp. 298-304 ◽  
Author(s):  
Stephan Muehlbacher ◽  
Erich Kirchler ◽  
Erik Hoelzl ◽  
Julie Ashby ◽  
Chiara Berti ◽  
...  
Keyword(s):  
New Zealand ◽  
Tax Evasion ◽  
Tax Compliance ◽  
The Other ◽  
Aspiration Level ◽  
Relevant Factor ◽  
Earned Income ◽  
Taxable Income ◽  
Compliance Decisions ◽  
Tax Reporting

Is the effort invested to achieve taxable income a relevant factor for tax compliance? If the value of income increases with the effort exerted, reluctance to pay taxes should be high. On the other hand, if income is perceived as compensation for one’s endeavor, there is too much at stake to take the risk of being audited and paying a fine. Consequently, tax evasion should be more likely if income was obtained easily. These contradicting predictions were tested in a questionnaire study with samples from eight countries (Australia, Austria, England, France, Italy, New Zealand, Spain and Switzerland; N = 1,223). Results show that the effort exerted to obtain taxable income and the aspiration level matter in compliance decisions. Hard-earned money is more likely to be reported honestly to tax authorities, particularly if the aspiration level can be satisfied by honest tax reporting.

scholarly journals Tax Reform Consequent upon an Embedded Single-Rate Vat Just Might Prevent Injustice While Revivifying a Geriatric Uncle Sam

2015 ◽  
Vol 1 (1) ◽  
pp. 1
Author(s):  
Emir Phillips
Keyword(s):  
Tax Evasion ◽  
Value Added ◽  
The United States ◽  
Fixed Costs ◽  
Tax System ◽  
Federal Deficit ◽  
A Value ◽  
United States Economy ◽  
Class 1 ◽  
Deduction Rules

<p class="1"><span lang="EN-US">Economists and legislators have proposed many theories and plans for overhauling the corporate tax system (and the U.S. tax system as a whole); however, this Article argues that any viable proposal should begin with the enactment of a value added tax (VAT).</span></p><p class="1"><span lang="EN-US">As a result of the IRC's unworkably complex corporate section, the United States economy has been hindered by high compliance costs and the loss of business overseas. Overall, a substantial federal VAT is the best option in terms of compliance and administration costs as well as reducing opportunities for federal tax evasion. But merely placing a VAT on top of the existing system would merely send us in reverse by further increasing the variable and substantial fixed costs of administration and compliance. A mere changing of the marginal rates or deduction rules would be insufficient to deal with the systematic problem caused by the yawning federal deficit and the arcane IRC. A VAT rate set too low would impose substantial costs per dollar of additional revenue. Thus, Congress should enact either a federal VAT (15%) capable of significantly reducing the federal deficit or none at all.</span></p>

scholarly journals The Quality Effect of Auditing on Tax Compliance: Evidence from Tunisian Context

2022 ◽  
Vol 12 (1) ◽  
pp. 24-27
Author(s):  
Lynda Soltani
Keyword(s):  
Tax Evasion ◽  
Audit Quality ◽  
Tax Compliance ◽  
Effective Tax Rate ◽  
Tax Rate ◽  
Accounting Environment ◽  
The Subject ◽  
The Difference ◽  
The Impact ◽  
Statutory Tax Rate

Taxation is the subject of complex and evolving regulations. it has become one of the major concerns of any business to better manage its finance, the responsible for corporate governance give an importance to the fiscal in the strategy and management of the company. In recent years, the importance of taxation in the financial and accounting environment is motivated to study the impact of control and transparency of infomation affected by audit quality. We study a sample of 19 companies between 2013 and 2017, the result shows that audit quality improves tax compliance in the Tunisian context while measuring tax evasion by the difference between the statutory tax rate and the effective tax rate. This study finds that tax evasion in Tunisian firms may have decreased with better audit quality.

Compliance Costs and the Tax Avoidance-Tax Evasion Decision

1988 ◽  
Vol 16 (1) ◽  
pp. 31-66 ◽  
Author(s):  
James Alm
Keyword(s):  
Tax Evasion ◽  
Tax Avoidance ◽  
Individual Choice ◽  
Tax Base ◽  
Tax Rate ◽  
Legal Method ◽  
Tax Reduction ◽  
Tax Complexity ◽  
Net Revenue ◽  
The Government

The analysis of the individual's choice of illegal tax evasion has typically ignored an alternative, legal method by which taxes can be reduced: tax avoidance. This article analyzes the joint individual choice of evasion and avoidance; it also examines optimal government policy in such a world. Its principal conclusion is that the existence of another channel for tax reduction alters many of the conclusions of the simpler evasion literature. Specifically, government policies that reduce evasion may not increase the tax base because avoidance may increase instead, and tax rate reductions may be a powerful tool for generating tax base increases because reductions make both evasion and avoidance less attractive. In addition, optimal government choices depend critically upon its objectives. The government selects larger values for its instruments when its goal is net revenue maximization or when those individuals who evade are not valued highly in its welfare function. It also appears that greater tax complexity generates more tax revenues.

scholarly journals Factors affecting the corporate income tax compliance in private enterprises in Ba Ria – Vung Tau province

2021 ◽  
Vol 5 (2) ◽  
pp. first
Author(s):  
Lê Thị Bảo Như ◽  
Nguyễn Thị Thu Hảo ◽  
Nguyễn Thị Hồng Hạnh
Keyword(s):  
Tax Evasion ◽  
Income Tax ◽  
Linear Regression Analysis ◽  
Tax Avoidance ◽  
Tax Compliance ◽  
Corporate Income Tax ◽  
Survey Method ◽  
Private Enterprises ◽  
Tax Rate ◽  
Factors Affecting

The corporate income tax management in Vietnam in general and Ba Ria - Vung Tau province, in particular, are facing a big challenge, which is finding the means of tax sufficient collection and avoidance of tax evasion. However, tax fraud or tax avoidance has been complicated and the number of these illegal activities tends to increase. From practical requirements, this paper contributes to the gap of previous studies by identifying factors affecting the corporate income tax compliance in private enterprises in Ba Ria - Vung Tau province. By survey method and linear regression analysis, the results show that there are seven factors that affect corporate income tax compliance, including the simplicity in tax declaration, tax inspection, the fairness of tax system, tax rate, financial status, the taxpayer's knowledge, and tax administration performance. Of all factors, the tax rate factor has a negative effect and the remaining factors have a positive effect on corporate income tax compliance. Based on these results, the authors propose some solutions to encourage private enterprises to comply with the corporate income tax regulations in Ba Ria - Vung Tau province.

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