Nuremberg Research Seminar in Economics on 23 October 2024, LG 0.423
You are invited to join the weekly Nuremberg Research Seminar in Economics on 23 October 2024, from 13.15 to 14.45 pm. The seminar will be held in room LG 0.423. Matthias Kasper (Walter Eucken Institute Freiburg i. Breisgau) will be talking about „Compliance Responses to Risk-based Tax Audits”.
More information can be found here:
This study investigates how the two main types of risk-based tax audits (face-to-face examinations and audits conducted by mail) affect future tax reporting. Our data includes granular tax return information and audit data, including risk indicators used for audit selection, on large samples of audited and unaudited self-employed U.S. taxpayers (n > 500,000). To identify the causal effect of audits on post-audit tax reporting, we employ difference-in-differences estimation with entropy balancing. Specifically, we estimate robust mean dollar and percentage changes in future reported taxes, as well as the distribution of compliance responses. Our results indicate that face-to-face audits are consistently effective in promoting future reporting compliance. On average, taxpayers increase their reported tax by around 75 percent ($2.000) following a face-to-face audit. The treatment effect remains at the same magnitude for the second year following the audit. The impact of correspondence audits on self-employed taxpayers is more nuanced, however. On average, correspondence audits increase reported tax in the following years by 25 percent ($1.200). However, we also find negative compliance responses to correspondence audits in some income groups as well as among taxpayers who are audited early in the examination cycle. Our findings indicate that compliance responses to risk-based tax audits differ substantially from responses to random audits and that the examination type has a strong effect on post-audit tax reporting.