Liucija Birskyte


The literature on tax compliance agrees that tax audits have two effects, direct and indirect. Direct effects of auditing are additional revenue collected as the result of a tax audit. Indirect effects refer to the deterrence effects, i.e. auditing deters potential tax evaders from cheating on their taxes. The research is based on the data from the USA. The objective of the paper is to determine (1) whether federal individual income tax audits are effective in improving voluntary tax compliance (2) whether the deterrent effects of those audits spill over to compliance with state individual income taxes. The results of multiple regression indicate that higher Internal Revenue Service (IRS) audit rates improve state individual income tax compliance. Other findings include evidence that opportunities to evade taxes, complexity of the tax code, as well as higher educational achievement are correlated with higher non-compliance.


Tax Evasion, Tax Compliance, Audits, Deterrence

Full Text:



Agha, A., & Haughton, J. (1996). Designing VAT Systems: Some Efficiency Considerations. Review of Economics and Statistics, 78(2), 303-308.

Allingham, M. G., & Sandmo, A. (1972). Income tax evasion: A theoretical analysis. Journal of Public Economics, 1, 323-338.

Alm, J. (1999). Tax Evasion. In J. J. Cordes, R. D. Ebel & J. G. Gravele (Eds.), Encyclopedia of Taxation and Tax Policy (pp. 354-356). Washington, D.C.: The Urban Institute Press.

Alm, J., Erard, B., & Feinstein, J. S. (1996). The Relationship between State and Federal Tax Audits. In M. Feldstein, Poterba James M. (Ed.), Empirical Foundations of Household Taxation (pp. 235-273). Chicago: The University of Chicago Press.

Alm, J., Jackson, B., & McKee, M. (1992a). Deterrence and Beyond: Toward a Kinder, Gentler IRS. In J. Slemrod (Ed.), Why People Pay Taxes (pp. 311- 329). Ann Arbor: The University of Michigan Press.

Alm, J., Jackson, B., & McKee, M. (1992b). Estimating the Determinants of Taxpayer Compliance with Experimental Data. National Tax Journal, XLV(1), 107- 114.

Alm, J., Jackson, B., & McKee, M. (2004). Audit Information Dissemination, Taxpayer Communication, and Compliance: An Experimental Approach. Retrieved January 14, 2005, 2004, from http://www.irs.gov/pub/irs-soi

Alm, J., McClelland, G. H., & Schulze, W. D. (1992). Why do people pay taxes? Journal of Public Economics, 48, 21-38.

Andreoni, J., Erard, B., & Feinstein, J. (1998). Tax Compliance. Journal of Economic Literature, 36, 818 - 860.

Beron, K. J., Tauchen, H. V., & Witte, A. D. (1992). The Effects of Audits and Socioeconomic Variables on Compliance. In J. Slemrod (Ed.), Why People Pay Taxes (pp. 67 - 90). Ann Arbor: The University of Michigan Press.

Bureau of Labor Statistics. (2008). Cosumer Price Index - All Urban Consumers. Retrieved May 17, 2008, from http://data.bls.gov/PDQ/servelet/SurveyOutputServlet

California Legislative Analyst's Office. (2005). California's Tax Gap. Sacramento, CA: Legislative Analyst's Office.

Coleman, S. (1996). The Minnesota Income Compliance Experiment: State Tax Results. Retrieved February 23, 2005, 1996, from http://www.taxes.state.mn.us/taxes/legal_policy/reserach_reports/content/complnce.pdf

Dubin, J. A., Graetz, M. J., & Wilde, L. L. (1990). The Effect of Audit Rates on the Federal Individual Income Tax, 1977-1986. National Tax Journal, 43(4), 395 - 409.

Dubin, J. A., & Wilde, L. L. (1988). An Empirical Analysis of Federal Income Tax Auditing and Compliance. National Tax Journal, XLI(1), 61 - 73.

Erard, B. (1992). The Influence of Tax Audits on Reporting Behavior. In J. Slemrod (Ed.), Why People Pay Taxes (pp. 95 - 115). Ann Arbor: The University of Michigan Press.

Feenberg, D. R., & Rosen, H. S. (1986). State Personal Income and Sales Taxes, 1977-1983. In H. S. Rosen (Ed.), Studies in State and Local Public Finance. Chicago: The University of Chicago Press.

Forest, A., & Sheffrin, S. M. (2002). Complexity and Compliance: An Empirical Investigation. National Tax Journal, LV(1), 75 - 88.

Gutmann, D., & Williams, J. (2004). Department of Revenue Compliance Study. Retrieved January 14, 2005, from http://dor.wa.gov/Docs/Reports/Compliance_Study/compliance_study_2005.pdf

Internal Revenue Service. (2006). Tax Year 2001 Federal Tax Gap. Retrieved September 19, 2006, from www.irs.gov/pub/irs-news/tax_gap_figures.pdf

Internal Revenue Service. (2007). Tax Year 2001 Federal Tax Gap. Retrieved July 13, 2007, from http://www.irs.gov/pub/irs-utl/taxgap021406.pdf

Long, S., & Schwartz, R. (1987). The Impact of IRS Audit on Taxpayer Compliance: A Field Experiment on Specific Deterrence. Paper presented at the Annual Meeting of the Law and Society Association.

Minnesota Department of Revenue. (2004). Individual Income Tax Gap: Tax Year 1999. Retrieved January 14, 2005, from http://www.taxes.state.mn.us/

New York State Department of Taxation and Finance. (2005). New York State Personal Income Tax Compliance Baseline Study, Tax Year 2002. New York: New York State Department of Taxation and Finance.Office of Tax Policy Analysis

OMB Watch. (2008). Bridging the GAP. Retrieved from http://www.ombwatch.org/budget/irstaxgap2008pdf

Penniman, C. (1980). State Income Taxation. Baltimore: The John Hopkins University Press.

Plumley, A. H. (1996). The Determinants of Individual Income Tax Compliance: Estimating the Impacts of Tax Policy, Enforcement, and IRS Responsiveness. Retrieved February 28, 2005, 1996, from http://www.irs.gov/pub/irs-soi/pub1916b.pdf

Plumley, A. H. (2002, November 14-16, 2002). The Impact of the IRS on Voluntary Tax Compliance: Preliminary Empirical Results. Paper presented at the National Tax Association 95th Annual Conference on Taxation, Orlando, Florida.

Slemrod, J. (1989). The Return to Tax Simplification: An Econometric Analysis. Public Finance Quarterly, 17(1), 3-28.

Slemrod, J., Blumenthal, M., & Christian, C. (2001). Taxpayer Response to an Increased Probability of Audit: Evidence from a Controlled Experiment in Minnesota. Journal of Public Economics, 79(3), 455-483.

Transactional Records Access Clearinghouse, S. U. (2004). National Profile and Enforcement Trends Over Time: Federal Internal Revenue Collections. Retrieved February 24, 2004, from http://trac.syr.edu/tracirs/findings/national/collpct.html

Treasury Inspector General For Tax Administration. (2008). Trends in Compliance Activities Through Fiscal year 2007. Retrieved from http://www.tigta.gov

U.S. Department of the Treasury. (2006). A comprehensive strategy for reducing the tax gap. Washington D.C.: U.S. Department of the Treasury, Office of Tax Policy.

U.S. Department of Treasury. (2009). Update on Reducing the Federal Tax Gap

and Improving Voluntary Compliance. July 22, 2011, from http://www.irs.gov/pub/newsroom/tax_gap_report_-final_version.pdf

U.S.Senate. (2006). Written Testimony of IRS Oversight Board Chairman Raymond T. Wagner,Jr before the Senate Committee on Finance , Subcommiittee on Taxation and IRS Oversight on "A Closer Look at the Size and Sources of the Tax Gap". Washington D.C. .

United States Government Accountability Office (GAO). (2006). Tax Compliance: Opportunities Exist to Reduce the Tax Gap Using a Variety of Approaches. Statement of Michael Brostek Before the Subcommittee on Taxation and IRS Oversight, Committee on Finance, U.S. Senate. Washington D.C.: GAO.

US. Department of Treasury. (2006). Taxpayer Attitude Survey 2005. Retrieved October 9, 2006, from www.treas.gov/irsob/board-reports. shtml

Vogel, J. (1974). Taxation and Public Opinion in Sweden: An Interpretation of Recent Survey Data. National Tax Journal, 27(4), 499 - 513.

Witte, A. D., & Woodbury, D. (1985). The Effect of Tax Laws and Tax Administration on Tax Compliance: The Case of the U.S. Individual Income Tax. National Tax Journal, 38(1), 1 - 13.

Yitzhaki, S. (1974). A note on Income tax evasion: A theoretical analysis. Journal of Public Economics, 3, 201-202.


  • There are currently no refbacks.

Print ISSN 2045-3345, Online ISSN 2047-7848

(c) 2016 English Time Schools and Overseas Education