Complexity and Compliance: An Empirical Investigation

Can a simplified United States tax system act as an effective deterrent to individual income tax evasion? Deterrence is usually sought through alternative methods that create fear, for example, increasing the probability of an audit. In contrast, this paper analyzes whether a simple tax system creates comfort and encourages compliance. Using data from the 1990 Taxpayer Opinion Survey, our approach is to estimate an empirical model that explores the connections between (i) taxpayer perceptions of the complexity of the tax system, (ii) taxpayer perceptions of the unfairness of the tax system, and (iii) taxpayer noncompliance. The results suggest that simplifying the tax system may not be an effective deterrent to tax evasion because taxpayers do not necessarily consider a complex tax system to be unfair.