Income Tax Compliance Costs of Working Individuals

Abstract

We analyze the compliance costs of individual taxpayers resulting from the German income tax (tax year 2007). Using survey data that have been raised between December 2008 and April 2009, we find evidence for a considerably higher cost burden of self-employed taxpayers. Taxable income and a higher education (university degree) are positively correlated with compliance costs, while the time effort of female taxpayers is significantly lower. By contrast, joint filing of married couples reduces the burden of tax compliance. The aggregate cost estimate of German income taxpayers amounts to €6 to €9 billion, respectively, 3.1 to 4.7 percent of the income tax revenue in 2007. This estimate is higher than latest projections

The Effect of Tax Preparation Expenses for Employees: Evidence from Germany

“…Slemrod and Sorum (1984) use survey data to explore determinants of paid preparation such as lower educational attainment, age and self-employment. In principle, survey results of Blumenthal and Slemrod (1992) for the U.S. and of Blaufus et al (2013) for Germany confirm these results. Collins et al (1990) use a market segmentation approach to differentiate heterogeneous motivations of taxpayers to pay for tax preparation, namely, decreasing compliance error rates and minimization of tax liabilities.…”

“…Germany, on the other hand, does not have an EITC as child allowances and other transfer payments are organized and paid almost independently from the tax system. Overall, the differences between the two countries systems likely change the demand for tax preparation services, and accordingly, the demand for tax preparation service is less in Germany than it is in the U.S. (Blaufus et al 2013). …”

“…To shed light on a potential measurement error of tax preparation expenses, we compare the average tax preparation expenses in the panel and the crosssectional data set with the survey evidence documented in Blaufus et al (2013).…”

Tax Compliance Costs: A Review of Cost Burdens and Cost Structures

“…As a result, international comparisons of the complexity of tax systems are a delicate issue. Thus, while existing results for individuals/households imply a relatively high burden in Australia and the U.S., this finding should be interpreted with caution (Blaufus, Eichfelder and Hundsdoerfer 2013). Research based on a simulation of compliance hours for a fictional business case instead of an empirical measurement of costs (PwC and World Bank 2013) is a first step but is probably insufficient to achieve that target.…”

“…This is also documented by Delgado Lobo, Salinas-Jimenez, and Sanz Sanz (2001) and DeLuca et al (2005). According to RWI (2003) as well as to Blaufus, Eichfelder, and Hundsdoerfer (2013), about 2/3 of the burden of the German compliance time for the income tax is due to collecting receipts and related record-keeping, Regarding Blumenthal and Slemrod (1992) we use the sum of separate activities to calculate the average ratios. Guyton (2014) find that post-filing compliance costs amount to 38.4 % of average costs for concerned individual taxpayers in the United States.…”