Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

3 - Public > 10 - Tax enforcement > Flashcards

10 - Tax enforcement Flashcards

(40 cards)

Start Studying
1
Q

what is the relationship between reported income and
p = probability of audit
pheta = fine

A

w- increases with both

  • so evasion will be less - because reporting higher income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

why is observed tax evasion levels much lower than the model works out
- when we add in the values for p and pheta

A
  1. unwilling to cheat
  2. unable to cheat
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what is unwilling to cheat

A
  • social norms
  • morality
  • dont want to cheat
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what is unable to cheat

A
  • may want to cheat
  • but cant because of institutional features
  • 3rd party reporting - when employer is reporting on your behalf
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what are the 3 kinds of experimental data that can be used to measure evasion

  • since not observable
A
  1. IRS
  2. lab experiments
  3. field experiments
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

what do IRS studies do
- how do they measure evasion

A
  • carries out random audits to estimate the tax gap
  • checks all their documentation
  • estiamates for population
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what is the tax gap

A

taxes evaded/taxes owed

what should be paid - what is paid = taxes evaded

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what do IRS find from their audit checks

A
  1. US tax gap = 14%
  2. tax gap concentrated among self-reporting income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what is the UK tax gap like
HMRC

A
  • tax gap is declining - 5.1%
  • 1% through PAYE (third party)
  • self assessment has more scope for non-compliance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what is the share of tax gap coming from each source in UK

A
  • highest share of tax evasion - in personal taxes = but brings in low revenue
  • second highest share = VAT misreporting = and brings in high revenue
  • within personal taxes - basically all missing revenue is coming from self reported not PAYE
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

so what is the area that UK should target tax enforcement

A

VAT misreporting

and top earners
- out of self employed that are misreporting the top 4% account for 42% of lost revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what are ways that HMRC can increase tax compliance

A
  1. audit (costly)
  2. direct reporting
  3. third party reporting
  4. behavioural interventions
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Advani (2021)

what do they test
what do they do

A

effects of UK audits on LR compliance behaviour
- does randomly audited a group have any LR effects in the amount they report in the future
- is there a benefit of auditing

  • use admin databases on UK taxes
  • randomised audit program
  • Treatment = given audit
  • Control = no audit
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Advani (2021)

what do they find

A
  • before audit = T and C no difference in reportings
  • after audit = T group tax compliance is higher than control - reports higher incomes for 5 years
  • audits constrain future misreporting
  • audits can be used as threats
  • audits have long lasting effects
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

why is measuring tax evasion through lab experiments bad

A
  • better to look at field experiments
  • lab experiments overestimate tax evasion
  • they do find strong relationship between p and pheta and reduced evasion
  • missing real world aspects
  • games with students arent the same (social norms + 3rd party reporting)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Blumenthal (2001)

what do they do

A
  • use normative appeals to comply
  • T = send non-threating letters to encourage compliance
  • c = no letter
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Blumenthal (2001)

what do they find

Study These Flashcards
A
  • no statistically significant effect of normative appeals on compliance overall
  • these letters dont impact tax compliance
18
Q

Slemrod (2001)

what do they do

Study These Flashcards
A
  • T = send threat of audit letter
  • scare people into compliance
  • C = no letter
19
Q

Slemrod (2001)

what do they find
- downfall of paper?

Study These Flashcards
A
  • statistically significant effect on reported income increase
  • especially among self employed
  • threats = work
  • normative = dont work
  • but small sample
20
Q

what are key descriptive data from Denmark

Study These Flashcards
A
  1. among evaders the most common strategy is to misreport everything

evasion by fraction of income self reported
- 3rd party evasion rate = 0
- evasion rate is 30% for positive fraction of self reported income
- % of income evaded is increasing in the share of self reported income
- below 0.2, misreport all income
- above 0.2, the percentage of income misreported grows slower = get scared

21
Q

Kleven (2011)

what did they do

Study These Flashcards
A
  • Denmark study of 40,000 sample
  • split into 2 groups - 100% audited in 2007 and not audited
  • fiscal year after split into 3 groups - no letter, 100% you will be audited letter, 50% you will be audited
  • followed up with audit in 2008?
22
Q

kleven what did they find
stats

Study These Flashcards
A
  • self employed evasion rate is almost 40%
  • third party evasion rate is 0.3%
  • overall evasion rate is 2.5%
  • because 95% of income is 3rd party reported in denmark (unable to cheat)
23
Q

what are klevens results from
marginal tax rates

  • bunching before and after audit
  • 100% audit group in 2007, before is 2006
Study These Flashcards
A
  • find that most bunching is not due to evasion but avoidance
  • effect of MTR of evasion is small
  • after audit - bunching only decreased by 1/3
  • only 1/3 of people started to report honestly and stopped bunching
  • means 2/3 is explained by something else
  • no change in bunching in stock income = means that all that bunching is driven by avoidance - income shifting, intertemporal
24
Q

what is kleven result from
prior audit effects

Study These Flashcards
A
  • significant effects on reported income increases for 100% audited group compared to 0%
  • driven by self reported items
25
what is kleven result on threat of audit
* sigificant effects on self reported income increases * more increase for people that got the letter then didnt
26
why does the AS model fail by overestimating tax evasion
* p is very low in real life - and still see low evasion - doesnt take into account third party reporting - most income is reported this way and it is very hard to evade - unable to evade
27
what happens when elasticity of the detection probability wrt undeclared income is e = 0
* then always evade if p(1+pheta)<1
28
what happens when elasticity of the detection probability wrt undeclared income is e > 0
* evading more increases risk of being caught on all evaded taxes
29
what is the shape of the p(w-) function
s shape - probability jumps to 1 when income starts to include 3rd party reported - probability is low for all self reported
30
what is p(w-)
- detection probability as a function of tax evasion depending on the share of self reported income
31
so how was the simple AS model wrong
- was assuming probability of getting caught was constant - p = 1/1+pheta * p is a function of w- - p = 1/(1+pheta)(1+e) - the optimum is just to the left of w-s
32
why is it hard for evasion to happen in third party reporting
1. single employee can unfold the collusion 2. hard to mess with accounting and payroll records
33
what is turnover taxes sales taxes VAT - which is easier to enforce
1. tax all sales - B-B and B-C 2. B-C sales only - strong incentive of evading 3. B-B and B-C - only on value added = easy to enforce
34
what is the automatic enforcement mechanism of VAT
* since you only pay taxes on value added (sales - purchases) * incentive to make sure the B you buy your inputs from declares those taxes so that you can deduct the inputs from your taxes * B-B wants VAT receipt - strong incentive to pay taxes on inputs
35
Pomeranz (2015) what do they do
- randomised experiment in Chile - send VAT threat letters to businesses - T = get letters - C = no letters
36
Pomeranz (2015) what do they find
* threat letters increase VAT collected - significant * increase is driven mainly by final sales compliance = consumers dont have incentive to not evade * small impact on intermediate sales = already reporting VAT fully * evidence that VAT is self enforcing between B-B, but not B-C
37
Naritomi (2019) what did they do what did they want to find
- will giving consumers incentive to make sure firms report final sales increase tax revenue - give consumers tax rebates and monthly lottery prizes for consumers that ask for receipts - consumers upload the receipt - treatment = retail sales - control = wholesale sector - no effect on lottery because already reporting VAT fully
38
Naritomi 2019 what did they find
- giving consumers incentive to ensure firms report final sales transactions increased tax revenue by 9.3% - but this is a costly way to enforce VAT so not good for LR
39
how big of an issue is holding wealth offshore
- 8% of global financial wealth of hhs is held in tax havens - probability to own an unreported HSBC account increasese by wealth group - a lot of missing revenue to gov - because super wealthy are hiding money in tax havens the most
40
what are methods to reduce curbing offshore tax evasion
- require banks to report accounts owned by US persons or face stiff penalties

3 - Public (10 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions