Compliance costs caused by agency action? Empirical evidence and implications for tax compliance |
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| Institution: | 1. University of Michigan, United States;2. Internal Revenue Service, United States;3. University of North Carolina at Chapel Hill, United States;4. University of California Berkeley, United States;1. Queensland Behavioural Economics Group (QuBE), School of Economics and Finance, Queensland University of Technology, GPO, Box 2434, Brisbane, QLD 4001, Australia;2. Research School of Economics, Australian National University, Canberra, ACT, Australia;3. School of Management, Queensland University of Technology, GPO, Box 2434, Brisbane, QLD 4001, Australia;4. AUTONOM TALENT® Consulting GmbH, Mariahilfer Straße 54/15, 1070 Vienna, Austria;5. CREMA, Center for Research in Economics, Management and the Arts, Gellertstrasse 18, CH-4052 Basel, Switzerland |
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| Abstract: | Compliance costs of taxpayers should not only be affected by the tax law itself but also by its implementation through the tax authorities. In this paper we analyze the effect of authority behavior on the burden of complying with tax regulations. Using survey data of Belgian businesses, we develop an estimation strategy to overcome simultaneity bias by the construction of proxy variables. According to our estimate, a customer-unfriendly tax administration increases the average compliance burden by about 27%. Our outcome has interesting implications for further research. First of all, authority behavior does not only affect “soft” tax compliance factors like fairness and trust, but also “hard” aspects like costs. Second, the distribution of administrative cost burdens between the taxpayer side and the authorities may be important regarding the cost-efficiency of the tax system as a whole. |
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| Keywords: | Tax compliance costs Red tape Tax administration Tax compliance Tax evasion Tax authority behavior Proxy variables Simultaneity bias |
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