Working Paper: NBER ID: w2512
Authors: Suzanne Scotchmer; Joe Slottje
Abstract: For most parameter values, increased randomness about how much taxable income an auditor would assess leads to higher reported income and more revenue, When reducing randomness is costly, optimality requires some randomness in assessed taxable Income. Even if reducing randomness g costless, taxpayers may prefer some randomness when the increased revenue can be rebated, so that the government a revenue stays fixed. These results do not rely on the presence of a distortion in labor supply.
Keywords: Tax enforcement; Randomness; Taxpayer behavior; Revenue collection
JEL Codes: H26; K34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increased randomness in tax assessments (H29) | higher reported income (E25) |
| higher reported income (E25) | increased revenue (H27) |
| increased randomness in tax assessments (H29) | increased revenue (H27) |
| maintaining some randomness does not impose a loss in expected utility (D81) | taxpayers benefit from unpredictability (H20) |
| some randomness preferred by taxpayers even if reducing randomness is costless (H89) | potential rebates from increased revenue (H20) |
| marginal increase in randomness does not decrease expected utility or revenue (D89) | taxpayers report higher income levels (H29) |
| taxpayers with non-increasing absolute risk aversion (D11) | report higher income levels as randomness increases (D89) |