Higher taxes, more evasion? Evidence from border differentials in TV license fees

Berger, Melissa; Fellner-Röhling, Gerlinde; Sausgruber, Rupert; Traxler, Christian

doi:10.1016/j.jpubeco.2016.01.007

Cited by 21 publications

(18 citation statements)

References 31 publications

(14 reference statements)

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“…Still others have collected their own compliance data from original sources, such as information on discarded cigarette packs to measure the degree to which smokers in a single jurisdiction (e.g. New York City) evade the jurisdiction's cigarette taxes (Chernick and Merriman, ), information on commuter tax allowances to estimate fraudulent claims for these allowances (Paetzold and Winner, ), information on border differentials in TV license fees to estimate evasion of these fees (Berger et al ., ) or information on Internet purchases to estimate evasion of sales taxes (Alm and Melnik, ).…”

Section: Insights From Empirical Researchmentioning

confidence: 99%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

245

223

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In this paper, I review and assess what we have learned about what motivates individuals to pay -or to not pay -their legally due tax liabilities. I focus on three specific questions. First, what does theory say about what motivates tax compliance? Second, what does the evidence show? Third, how can government use these insights to improve compliance? I conclude with some suggestionsand some predictions -for future research. 356 ALM measure of the individual's constant relative risk aversion. Using the definitions of I C and I N in equations (1) and (2), the expected utility maximization generated by the solution to equation (3) can be solved for the optimum amount of reported income R*. 9 Now suppose that R* is calculated for specific, realistic values of the various parameters. For example, if t = 0.4, f = 2, p = 0.02 and e = 1, then the individual will optimally report no income. Very large values for relative risk aversion are required to generate compliance consistent with actual country experience. When e = 3, reported income is only 14% of true income; when e = 5, it is still only 44%; when e = 10, it is 71%; and e must exceed 30 for compliance to exceed 90%. Even if the probability of detection is as (unrealistically) high as 30% (with t = 0.4 and f = 2), relative risk aversion must exceed 7 to generate compliance over 90%. However, existing field evidence on the coefficient of relative risk aversion using a variety of approaches suggests that e ranges between 1 and 2, and may even be as low as 0 (Friend and Blume, 1975;Hansen and Singleton, 1983;Hall, 1988;Chetty, 2006;Gandelman and Hernandez-Murillo, 2013). Risk aversion must be abnormally large for behaviour to be even roughly comparable to actual observed choices, even in many developing countries with low levels of compliance.Admittedly, there are reasons why this simplistic analysis somewhat overstates the problem with the standard expected utility approach. 10 Consider the United States as an example. First, a standard feature of many individual income tax systems is that a third party (e.g. the individual's employer) reports the relevant part of an individual's taxable income to the tax authority (and often also withholds income taxes on this reported taxable income). This third-party information increases significantly the chances that an individual who underreports income on a filed return will be detected, especially in its combination with employer source-withholding. 11 Second, the 'official' IRS audit rate somewhat understates 'actual' IRS audit policy. In fact, the IRS conducts a range of audits, and for many types of audits, the actual rates are quite high. Third and relatedly, while overall audit rates are quite low, among certain income and occupation classes, they are more frequent. Fourth, the IRS conducts a wide range of audit-type activities, including line matching and requests for information, and these activities are much more frequent. 12 Finally, it is individual perceptions of audit rates that influence behaviour, rather than...

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Section: Insights From Empirical Researchmentioning

confidence: 99%

What Motivates Tax Compliance?

Alm

2018

Journal of Economic Surveys

245

223

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“…The enforcement efforts are reflected in the compliance rate: in 2005, around 90 percent of all Austrian households had registered broadcasting equipment and paid a total of €650 million (0.3 percent of GDP; see Berger et al 2016). The number of registered households is in constant flux.…”

Section: A License Feesmentioning

confidence: 99%

Compliance Behavior in Networks: Evidence from a Field Experiment

Drago

Mengel

Traxler

2020

American Economic Journal: Applied Economics

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This paper studies the spread of compliance behavior in neighborhood networks in Austria. We exploit a field experiment that varied the content of mailings sent to potential evaders of TV license fees. The data reveal a strong treatment spillover: untreated households are more likely to switch from evasion to compliance in response to mailings received by their network neighbors. Digging deeper into the properties of the spillover, we find that it is concentrated among close neighbors of the targets and increases with the treated households’ diffusion centrality. Local concentration of equally treated households implies a lower spillover. (JEL C93, D12, D85, L82, L88, Z13)

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“…Lower values of m i indicate lower costs of engaging in tax evasion and in turn a lower incentive to comply with the tax law. Following Berger et al (2016), individuals draw their idiosyncratic cost parameter from a cumulative distribution function G (m i ), where G (0) = 0 and G (m) = 1, with a probability density function of g (m i ). Then, in the spirit of Allingham and Sandmo (1972), if an individual does not declare the purchase, she gets caught by the domestic tax authority with an exogenously given probability of p, determined by the state, and has to pay an additional exogenous fine f to the state.…”

Section: Basic Frameworkmentioning

confidence: 99%

“…Instead, if the probability of detection is sufficiently low, it is optimal for municipalities to tax discriminate in favor of residents cross-border shopping in the neighboring municipality by reducing the use tax rate below the sales tax rate which implies that the destination-based use tax will not be fully exploited. The reason is that, in the presence of tax-driven cross-border shopping, reducing the use tax rate below the sales tax rate ultimately reduces tax evasion (see Berger et al, 2016 for a similar argument, in a different context). Thus, the use tax is not exploited to achieve destination-based taxation at the full rate and fight tax avoidance, but rather to reduce tax evasion.…”

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confidence: 99%

Will destination-based taxes be fully exploited when available? An application to the U.S. commodity tax system

Agrawal

Mardan

2019

Journal of Public Economics

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We develop a tax competition model that allows for the setting of both an origin-based and a destination-based commodity tax rate in the presence of avoidance and evasion. In the presence of evasion, jurisdictions will give cross-border shoppers tax preferential treatment, thus not fully exploiting the potential of destination-based taxation. Moreover, the divergence between originbased and destination-based taxes is stronger when the incentives for consumers' tax-arbitrage opportunities increase. The United States is one example of many such systems. While sales taxes are due at the point of sale, use taxes are due on goods purchased out-of-state. We document that when able to set both rates, a majority of jurisdictions levy destination-based use taxes at a lower rate than origin-based sales taxes. In response to changes in state-level policies that increase tax avoidance opportunities, the results of the empirical model broadly confirm our theory.

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Higher taxes, more evasion? Evidence from border differentials in TV license fees

Cited by 21 publications

References 31 publications

What Motivates Tax Compliance?

What Motivates Tax Compliance?

Compliance Behavior in Networks: Evidence from a Field Experiment

Will destination-based taxes be fully exploited when available? An application to the U.S. commodity tax system

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