Self-audits, penalties, and taxpayer compliance

The introduction of self-conducted audits into a reporting and auditing game between taxpayers and a taxing authority is investigated. When taxpayers are not expecting self-audits and when the number of audits is limited by budget constraints, penalty-free self-audits can increase taxpayer complianc...

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Bibliographic Details
Published in:The Journal of the American Taxation Association 1994-10, Vol.16 (2), p.63
Main Authors: Hemmer, Thomas, Stinson, Christopher H, Vaysman, Igor
Format: Article
Language:English
Subjects:
Auditing
Audits
Behavioral decision theory
Compliance
Fines & penalties
Liability
Self regulation
Studies
Tax audits
Taxpayers
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Summary:The introduction of self-conducted audits into a reporting and auditing game between taxpayers and a taxing authority is investigated. When taxpayers are not expecting self-audits and when the number of audits is limited by budget constraints, penalty-free self-audits can increase taxpayer compliance when the cost of self-audits is sufficiently low. However, when taxpayers are expecting the possibility of penalty-free self-audits, compliance can be lower than it would have been without self-audits. Therefore, early test-marketing of penalty-free self-audits may indicate that they increase taxpayer compliance, while subsequent establishment of penalty-free self-audits can result in decreased compliance. Nonetheless, self-audits can be desirable additions to a taxing authority's tax-collection technology.
ISSN:0198-9073
1558-8017