Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers

IMF Working Papers, October 11, 2019

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Canonical URL: Do Audits Deter or Provoke Future Tax Noncompliance? Evidence on Self-employed Taxpayers

Study employs unique tax administrative data and operational audit information from a sample of approximately 7,500 self-employed U.S. taxpayers to investigate the effects of operational tax audits on future reporting behavior.
Authors: Sebastian Beer, Matthias Kasper, Erich Kirchler, Brian Erard
Date: October 11, 2019

"Our estimates indicate that audits can have substantial deterrent or counter-deterrent effects."
Among taxpayers who receive an additional tax assessment:
- Reported taxable income is estimated to be 64% higher in the first year after the audit than it would have been in the absence of the audit.
Among taxpayers who do not receive an additional tax assessment:
- Reported taxable income is estimated to be approximately 15% lower the year after the audit than it would have been had the audit not taken place.
Conclusion highlighted in the summary: improved targeting of audits towards noncompliant taxpayers would not only yield more direct audit revenue, it would also pay dividends in terms of future tax collections.

Improve targeting of audits toward noncompliant taxpayers to:
- Increase direct audit revenue.
- Enhance future tax collections via deterrent effects on reporting behavior.

Sample: approximately 7,500 self-employed U.S. taxpayers.
Subject areas: Auditing, National accounts, Personal income, Public financial management (PFM), Revenue administration, Tax assessments, Tax auditing and verification, Tax return filing compliance.
Keywords (as listed): audit assessment, audit experience, audit outcome, audit sample, audit selection, audit selection decision, audit selection process, audited taxpayer, Auditing, CIT audit, control group, impact evaluation, Personal income, small business taxpayers, Tax assessments, Tax auditing and verification, Tax return filing compliance, treatment effect, WP