| Abstract: | The probability of errors in tax returns has not been modeled explicitly before. However, corrections on individual tax returns, made by the fiscal authorities, may be related both to tax evasion and to errors made by the taxpayers. The probabilities of detecting tax evasion (true positives) and errors in tax returns (partly interpreted as false alarms) are specified and parametrized by variables known from the literature. In an empirical survey, the response to a questionnaire has been combined with information from the tax administration regarding tax returns. Taxpayers' willingness and ability to conceal income from the tax authorities are key factors with respect to tax evasion. Furthermore, the model enables the estimation of tax evasion probability, given the level of education and the opportunity to conceal income. The probabilities of tax evasion and errors could be explained to some extent. |
