Post-Audit Tax Compliance: Endogenous Audits and Audit Effectiveness

Last registered on October 10, 2023

View Trial History

Pre-Trial

Trial Information

General Information

Title

Post-Audit Tax Compliance: Endogenous Audits and Audit Effectiveness

RCT ID

AEARCTR-0012026

Initial registration date

September 20, 2023

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published

October 04, 2023, 1:31 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Last updated

October 10, 2023, 5:16 AM EDT

Last updated is the most recent time when changes to the trial's registration were published.

Locations

Country

Germany

Region

Primary Investigator

Name

Aline Mohr

Affiliation

University of Freiburg

Contact Primary Investigator

Other Primary Investigator(s)

Additional Trial Information

Status

In development

Start date

2023-10-10

End date

2023-10-15

Keywords

Behavior, Governance, Lab, Welfare

Additional Keywords

tax evasion, endogenous audit rule, exogenous audit rule, audit effectiveness, post-audit effect, tax evasion game

JEL code(s)

H2, H3

Secondary IDs

Prior work

This trial does not extend or rely on any prior RCTs.

Abstract

As tax evasion remains a large problem in many countries with immediate consequences for the economy and living standards, tax authorities make use of audits to deter non-compliance.
Thus, it is crucial to examine the determinants of the post-audit effect on the tax compliance behavior of audited taxpayers. In this light, I investigate experimentally the causal effect of audit effectiveness on post-audit tax compliance in presence of an endogenous audit selection rule. Furthermore, I study whether this effect differs from the one observed in a setting with an exogenous audit selection rule. To do so, I will implement a randomized control trial within a tax evasion game in the form of an online experiment using a Census-Matched sample of at least 399 US citizens. Based on their order of entry in the study, participants are randomly assigned to one of the three treatments regarding audit effectiveness, low (T1), medium (T2) or high (T3). Additionally, participants experience both, a setting with an exogenous and an endogenous audit selection rule. The outcomes of interest are subjects’ (post-audit) tax compliance rates. I hypothesize that the direction of the post-audit effect depends on audit effectiveness, i.e., effective audits increase, and ineffective audits decrease post-audit tax compliance rates, in both settings. I expect that, comparing the endogenous to the exogenous audit setting, overall compliance is higher, while the effect of effective audits is stronger and the one of ineffective audits is weaker.

External Link(s)

Registration Citation

Citation

Mohr, Aline. 2023. "Post-Audit Tax Compliance: Endogenous Audits and Audit Effectiveness." AEA RCT Registry. October 10. https://doi.org/10.1257/rct.12026-1.1

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Experimental Details

Interventions

Intervention(s)

Intervention Start Date

2023-10-10

Intervention End Date

2023-10-15

Primary Outcomes

Primary Outcomes (end points)

I consider (post-audit) tax compliance rates (declared income over total income), obtained from the online experiment, as primary outcomes of the study.
Several dummy variables and their interaction terms are added to the regression in order to identify the post-audit effect, the effect of audit effectiveness on post-audit tax compliance and the difference between a setting with an exogenous and an endogenous audit selection rule.

Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)

Additionally, I investigate in both, the setting with an exogenous and an endogenous audit selection rule, whether a taxpayer's prior reporting behavior affects the effect of audit effectiveness on post-audit tax compliance by limiting the regression sample to relatively compliant and noncompliant taxpayers respectively.

Secondary Outcomes (explanation)

Experimental Design

I investigate the causal effect of audit effectiveness on post-audit tax compliance in presence of an endogenous audit selection rule. Additionally, I study whether this causal effect differs from the one observed in a setting with an exogenous audit selection rule. Therefore, I implement an online experiment simulating voluntary income tax reporting. Hence, a Census-Matched sample of at least 399 US citizens will be recruited using CloudResearch’s Connect.

This online experiment consists of two parts with each multiple decision rounds. In each decision round participants are endowed with a certain income and need to decide on the amount of income reported to the tax agency. Thereafter, participants face the risk of being audited. In the first part, participants are confronted with an exogenous audit selection rule, while the audit selection rule becomes endogenous in the second part.

In the beginning of the experiment, participants are randomly assigned to one of the three treatment groups. Participants in the first treatment group experience audits of low effectiveness, whereas participants in the second and third treatment group face audits of medium and high effectiveness, respectively. The main outcomes of interest in this study are participants’ (post-audit) tax compliance rates. Compliance behavior is identified from the decisions taken by the participants in the multiple decision rounds and allows to determine the researched causal effects by adding respective dummy variables to the regression.

Experimental Design Details

Randomization Method

The random assignment of the participants to the three treatments is based upon their order of entry in the study. The order of entry in the study is random, because subjects are free to choose when to participate in the online experiment after its implementation. The data for each treatment group is collected in a different experimental session.
In each decision round and for each participant the outcome of a decision round, i.e. whether or not an audit takes place, is based on randomization done by a computer. This randomization takes the respective audit probabilities into account.

Randomization Unit

Subjects participating in the online experiment are randomly assigned to the three treatments upon their order of entry in the study. Furthermore, individual randomization takes place in each decision round in order to determine whether or not an audit takes place.

Was the treatment clustered?

Experiment Characteristics

Sample size: planned number of clusters

I plan to recruit a Census-Matched sample of at least 399 US citizens.

Sample size: planned number of observations

The planned minimum number of observed income reporting decisions amounts to 3990.

Sample size (or number of clusters) by treatment arms

The sample of at least 399 US citizens will be assigned to three treatments. Thus, at least 133 participants will be assigned to each treatment. This leads to at least 665 observations in each part and treatment of the experiment and amounts to a total of at least 1330 observations per treatment arm.

Minimum detectable effect size for main outcomes (accounting for sample design and clustering)

At this sample size, the minimum detectable effect size at a power of 0,95 is 0,25.

Supporting Documents and Materials

IRB