Taxpayer information assistance services and tax compliance behavior

The traditional “enforcement” paradigm of tax administration views taxpayers as potential criminals, and emphasizes the repression of illegal behavior through frequent audits and stiff penalties. However, an important trend in tax administration policies in recent years is the recognition that this paradigm is incomplete. Instead, a revised “service” paradigm recognizes the role of enforcement, but also emphasizes the role of tax administration as a facilitator and a provider of services to taxpayer-citizens. This research utilizes laboratory experiments to test the effectiveness of such taxpayer service programs in enhancing tax compliance. Our basic experimental setting mimics the naturally occurring environment: subjects earn income, they must choose whether to file a tax return, and they then must choose how much of their net income to report to a tax authority that may audit the subject. To investigate the effects of taxpayer services, we “complicate” these compliance decisions of subjects, and then provide “services” from the “tax administration” that allow subjects to compute more easily their tax liabilities. Our results indicate that uncertainty reduces both the filing and the reporting compliance of an individual. However, we also find that agency-provided information has a positive and significant impact on the tendency of an individual to file a tax return, and also on reporting for individuals who choose to file a return.