Efficient tax reporting: The effects of taxpayer information services

As policy makers recognize the complexity of the tax system can result in some “evasion” being due to errors, there has been increasing focus on the role of taxpayer services as a tool in the enforcement regime. Such programs can improve the image of the tax agency but the critical issue is the effect on tax reporting. While the earlier focus has been on tax evasion, tax overreporting is also an issue since it leads to inefficient resource allocation. Thus, the present paper focusses on the effectiveness of taxpayer service programs in enhancing tax reporting. Data are collected on tax reporting decisions via laboratory experiments designed to implement the tax reporting task. To investigate the effects of taxpayer services, we “complicate” these compliance decisions of subjects, and then provide “services” from the “tax administration” that allow subjects to compute more easily their tax liabilities. Briefly, we find that our subjects are less likely to file when tax liability is uncertain but the provision of information offsets this effect; it appears that simply providing the service, even an imperfect service, increases the propensity to file and the accuracy of the filing. Key Words: tax information services; tax reporting; behavioral economics; experimental economics