Taxpayers are much more likely to hide income they report themselves
In short: A field experiment in Denmark involving over 40,000 individual tax filers revealed that the way income is reported significantly impacts the likelihood of evasion. Researchers found that while tax evasion is nearly non-existent for income reported by third parties, it remains substantial for income that taxpayers must report themselves.
The study adds nuance to our understanding of tax behavior by distinguishing between different types of income reporting. It suggests that the ability to hide information is a primary driver of evasion, rather than just the tax rate itself.
The researchers used a randomized field experiment where half of the filers were audited and the other half were not, followed by a random distribution of threat-of-audit letters. A limitation of the study is that it focuses on specific types of income reporting rather than all possible forms of financial activity.
Why it matters: The ease of hiding information, rather than just the tax rate, is a key driver of tax evasion.
Opens the Intellect+ feed with this card first. Swipe up for the next one.
Sources
- Summary by Intellect · source: Research: Kleven et al. (2011). Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark. Econometrica.
To cite this card, link to https://intellectplus.co.uk/app/wealth-research-taxpayers-are-much-more-likely-to-hide-income-they-report-th.
How we source, check and correct cards: Editorial standards.
General information, not professional advice. Spotted an error? Flag the card or see corrections and complaints.
Intellect Plus is a visual educational discovery platform for exploring fascinating facts and ideas. Brain Food, Not Brain Rot. What is Intellect Plus?
