Investigating the Effect of Service Messages on Noncompliant Taxpayers’ Reactions to Declining Audit Effectiveness

Published In

SSRN

Document Type

Citation

Publication Date

11-2020

Abstract

We examine the very real possibility that audits begin to lose effectiveness as tax authorities continue to receive fewer resources. In an experiment using real US taxpayers, we predict and find a negative relationship between declining audit effectiveness and taxpayer compliance in subsequent periods. Although the most obvious solution would be to invest the resources necessary to achieve full audit effectiveness, this is not feasible in the current budgetary environment. Thus, we propose and test that the inclusion of minimal cost service messages can offset the negative effect of declining audit effectiveness by influencing how the taxpayers perceive the taxing authority. Specifically, our results show taxpayers who view a service message are more likely to view the Internal Revenue Service as focused on customer service (rather than as focused on punishing criminals). Results contribute to the literature on individual tax compliance behavior, particularly related to taxpayers’ awareness of the balance between the service and enforcement efforts of tax authorities.

Rights

Copyright (2020) Elsevier

DOI

10.2139/ssrn.3727565

Persistent Identifier

https://archives.pdx.edu/ds/psu/38584

Share

COinS