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Ambiguity about Audit Probability, Tax Compliance, and Taxpayer Welfare

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Author Info
Arthur Snow
Ronald S. Warren

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Abstract

We show that an increase in uncertainty about the probability of being audited (ambiguity) increases tax compliance for ambiguity-averse taxpayers but reduces compliance for ambiguity lovers. Because experimental evidence reveals considerable heterogeneity with respect to ambiguity preferences, we conclude that fostering uncertainty about the probability of being audited may not be an effective policy for increasing taxpayer compliance. Moreover, because the tax authority can neither categorize nor screen taxpayers on the basis of their preferences for ambiguity, it is not likely to be either a useful or a desirable instrument for increasing taxpayer welfare. (JEL H26, D81) Copyright 2005, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbi066
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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 43 (2005)
Issue (Month): 4 (October)
Pages: 865-871
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Handle: RePEc:oup:ecinqu:v:43:y:2005:i:4:p:865-871

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Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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This page was last updated on 2009-10-23.

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