Tax Compliance: An Investigation Using Individual TCMP Data
Helen V. Tauchen
Ann Dryden Witte
Kurt J. Beron
In this paper, we analyze the tax compliance behavior of US taxpayers by
using a 1979 data set that combines information from a random sample of
individual tax returns each of which has been thoroughly audited, IRS
administrative records, and sociodemographic data from the Census. We find
evidence that both audits and tax code provisions affect compliance. However,
the effects are significant for only the low and high income groups.
Interestingly, previous research has shown that these groups also participate
most actively in underground economic activities, the income from which is not
reported on any tax returns. Our results for audits suggest that the "ripple"
or general deterrent effect of audits may be many times larger than the direct
revenue yield of audits for high income taxpayers. Our results for allowable
subtractions from income imply that the 1986 Tax Reform Act changes to lower
allowable subtractions nay have procompliance effects.
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