Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark

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Standard

Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark. / Kleven, Henrik Jacobsen; Knudsen, Martin B.; Kreiner, Claus Thustrup; Pedersen, Søren; Saez, Emmanuel.

In: Econometrica, Vol. 79, No. 3, 2011, p. 651-692.

Research output: Contribution to journalJournal articleResearchpeer-review

Harvard

Kleven, HJ, Knudsen, MB, Kreiner, CT, Pedersen, SÃ & Saez, E 2011, 'Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark', Econometrica, vol. 79, no. 3, pp. 651-692. https://doi.org/10.3982/ECTA9113

APA

Kleven, H. J., Knudsen, M. B., Kreiner, C. T., Pedersen, SÃ., & Saez, E. (2011). Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark. Econometrica, 79(3), 651-692. https://doi.org/10.3982/ECTA9113

Vancouver

Kleven HJ, Knudsen MB, Kreiner CT, Pedersen SÃ, Saez E. Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark. Econometrica. 2011;79(3):651-692. https://doi.org/10.3982/ECTA9113

Author

Kleven, Henrik Jacobsen ; Knudsen, Martin B. ; Kreiner, Claus Thustrup ; Pedersen, Søren ; Saez, Emmanuel. / Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark. In: Econometrica. 2011 ; Vol. 79, No. 3. pp. 651-692.

Bibtex

@article{806be38460fd41bfb2e329cef2e89658,
title = "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark",
abstract = "This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.",
keywords = "tax evasion, field experiment, tax enforcement",
author = "Kleven, {Henrik Jacobsen} and Knudsen, {Martin B.} and Kreiner, {Claus Thustrup} and S{\~A}¸ren Pedersen and Emmanuel Saez",
year = "2011",
doi = "10.3982/ECTA9113",
language = "English",
volume = "79",
pages = "651--692",
journal = "Econometrica",
issn = "0012-9682",
publisher = "Wiley-Blackwell",
number = "3",

}

RIS

TY - JOUR

T1 - Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark

AU - Kleven, Henrik Jacobsen

AU - Knudsen, Martin B.

AU - Kreiner, Claus Thustrup

AU - Pedersen, Søren

AU - Saez, Emmanuel

PY - 2011

Y1 - 2011

N2 - This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.

AB - This paper analyzes a tax enforcement field experiment in Denmark. In the base year, a stratified and representative sample of over 40,000 individual income tax filers was selected for the experiment. Half of the tax filers were randomly selected to be thoroughly audited, while the rest were deliberately not audited. The following year, threat-of-audit letters were randomly assigned and sent to tax filers in both groups. We present three main empirical findings. First, using baseline audit data, we find that the tax evasion rate is close to zero for income subject to third-party reporting, but substantial for self-reported income. Since most income is subject to third-party reporting, the overall evasion rate is modest. Second, using quasi-experimental variation created by large kinks in the income tax schedule, we find that marginal tax rates have a positive impact on tax evasion for self-reported income, but that this effect is small in comparison to legal avoidance and behavioral responses. Third, using the randomization of enforcement, we find that prior audits and threat-of-audit letters have significant effects on self-reported income, but no effect on third-party reported income. All these empirical results can be explained by extending the standard model of (rational) tax evasion to allow for the key distinction between self-reported and third-party reported income.

KW - tax evasion

KW - field experiment

KW - tax enforcement

U2 - 10.3982/ECTA9113

DO - 10.3982/ECTA9113

M3 - Journal article

VL - 79

SP - 651

EP - 692

JO - Econometrica

JF - Econometrica

SN - 0012-9682

IS - 3

ER -

ID: 33620945