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The effect of late payment penalties on the payment timing of owed taxes

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  • Skov, Peer Ebbesen

Abstract

This paper studies the effectiveness of a policy designed to influence the timing decision for payments of owed taxes. Owed taxes arise when the sum of the foregoing tax year’s preliminary tax payments falls short of the total tax liability. In 2009 the Danish tax authority (SKAT) introduced an annualised penalty rate of 4.6%. Using administrative tax data, I show that the penalty rate introduction led to a 50-day advancement of payments.

Suggested Citation

  • Skov, Peer Ebbesen, 2023. "The effect of late payment penalties on the payment timing of owed taxes," Economics Letters, Elsevier, vol. 229(C).
    • Handle: RePEc:eee:ecolet:v:229:y:2023:i:c:s0165176523002252
    DOI: 10.1016/j.econlet.2023.111200
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    References listed on IDEAS

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    1. Claus Thustrup Kreiner & David Dreyer Lassen & Søren Leth-Petersen, 2019. "Liquidity Constraint Tightness and Consumer Responses to Fiscal Stimulus Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 11(1), pages 351-379, February.
    2. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    3. Hallsworth, Michael & List, John A. & Metcalfe, Robert D. & Vlaev, Ivo, 2017. "The behavioralist as tax collector: Using natural field experiments to enhance tax compliance," Journal of Public Economics, Elsevier, vol. 148(C), pages 14-31.
    4. Norman Gemmell & Marisa Ratto, 2018. "The Effects of Penalty Information on Tax Compliance: Evidence from a New Zealand Field Experiment," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(3), pages 547-588, September.
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    More about this item

    Keywords

    Tax compliance; Tax enforcement;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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