John Hasseldine

More tax evasion research required in new millennium

Scholarly communication across disciplines is much harder than within disciplines. This article highlights the pervasive phenomenon of tax evasion and discusses the different theoretical models and research approaches that have been used to study the problem in the last two decades. Much of this research has been conducted in the U.S. Policy approaches suggested by this research may therefore have limited applicability in other countries. With theoretical models from a variety of disciplines available to use, and many unanswered questions remaining, international comparisons and multi-method approaches should be useful to the many policymakers and academic researchers interested in understanding the puzzle of tax compliance.

Persuasive Communications: Tax Compliance Enforcement Strategies for Sole Proprietors*

Tax systems such as those found in Canada, the United States, and the United Kingdom primarily rely on the notion of voluntary compliance by taxpayers, but, importantly, the threat of possible audit also serves to “encourage” voluntary tax compliance (Braithwaite 2003). Audits, however, are not without cost to tax administrations, and they may not be an optimal use of government resources for all taxpayers.1 Given limited resources, the tax agency will ultimately be constrained by the extent of audit enforcement strategies, and, as a result, alternative strategies need to be considered. Prior behavioral research using hypothetical cases and taxpayer self-reports has reported mixed results regarding the success of using persuasive communications to encourage compliant tax reporting (Hasseldine and Kaplan 1992; Hite 1989, 1997; Violette 1989). Critiques of that research often focus on the lack of generalizability to real taxpayer data. Few behavioral studies have been able to use actual taxpayer data (Schwartz and Orleans 1967; McGraw and Scholz 1988, 1991; Blumenthal, Christian, and Slemrod 2001). The results from these studies are inconsistent and could be a result of the differing research designs. The current study addresses some of those design issues by using brief, straightforward normative appeals (positive reasons why compliance is advantageous) and sanction appeals (appeals emphasizing the negative consequences of noncompliance) to test for behavioral responses on actual sole proprietors’ tax reports to the UK Inland

Framing, gender and tax compliance

In the context of extensive social science research on framing, we discuss how framing objectively equivalent information can (but does not always) differentially affect individuals attitudes and behaviors. Many of these framing effects have been found in the health communications and marketing literatures. Using a typology of framing developed by Levin et al. [Organ. Behav. Hum. Dec. Proc. 76 (1998) 149], we are able to classify prior tax compliance research, much of it reported in the Journal of Economic Psychology, that suggests decision frames influence tax reporting behavior. This prior research is now known as risky choice framing. Our study differs from this prior literature as, using goal framing, we manipulate two objectively equivalent messages (one positively framed, one negatively framed) that are communicated to adult taxpayers. We find no evidence of a main effect for framing objectively equivalent information. However, in line with prior research, a significant frame by gender interaction effect was documented. We discuss our results in the light of prior framing and tax compliance research and suggest policy implications. A further contribution of this study is that goal framing effects are demonstrated to extend beyond health and consumer behavior settings.

The Tax Gap: A Methodological Review

The global economic crisis has highlighted the continuing problem of tax evasion. For tax agencies to respond, an important antecedent necessitates knowing the extent of the problem. This study is the first to comprehensively review recent research on the tax gap. Our primary contributions are twofold. First, we argue that the tax gap, as conventionally defined, is conceptually flawed because it fails to capture behavioral responses by taxpayers adequately. Our second contribution is to review methods for measuring the tax gap and compare empirical estimates. We suggest that many of the most trenchant criticisms of conventional tax gap measurement (and the “hidden economy” measures that underlie them) leave only microdata-based measures of tax noncompliance as likely to deliver more reliable tax gap estimates. Even here, however, further work is required, on both conceptual and empirical aspects, before researchers are likely to deliver tax gap estimates suitable for policy analysis (e.g., implications for enforcement policy).

Factors Affecting the Costs of UK VAT Compliance for Small and Medium-Sized Enterprises

As firms grow, taxation and, in particular, value added tax (VAT), is one of the first areas in which they must deal with government regulations. It has been argued in the United Kingdom that regulatory requirements are burdensome and can even be a constraint on the development and growth of small and medium-sized enterprises (SMEs). The authors focus on SMEs and link the literature on VAT regulations and compliance costs to wider issues relating to SMEs. The costs of complying with VAT regulations are separated into core costs and total costs. Core costs are the mandatory costs that SMEs have to incur in order to comply with the VAT legislation and regulations. Total costs include VAT planning and one-off costs. For SMEs core costs represent a larger proportion of total compliance costs than is the case for larger businesses. A reduction in core costs would have a significant impact on the total VAT-compliance costs for SMEs. Factors expected to be associated with higher compliance costs are identified and tested in a multivariate framework. Empirical data were obtained from a survey of 4796 firms resulting in a final sample of 1085 firms and a response rate of 25.1%. Higher compliance costs (in absolute terms) are associated, inter alia, with increased turnover, newly registered firms, and increased complexity. Firms with higher compliance costs also perceived high psychological costs of VAT compliance. Compliance costs were also higher for individuals who did not have English as their first language, and individuals with special needs. The important implications of the findings for policy are highlighted.

A primer on tax education in the United States of America

The targeted readership of this article are tax educators employed outside the USA and other readers who are interested in tax education and research within the USA. After briefly outlining key features of the US tax system, the article describes the ‘traditional’ approach to tax teaching and documented concerns with this approach. A number of alternative approaches to tax teaching stemming from the work of the Accounting Education Change Commission are described. In addition, a synopsis of prior tax education literature from the USA is presented so that interested readers can further investigate some of the specific techniques described. The pendulum of tax teaching in the USA has swung between a rule-oriented lecture format and a more abstract economic analysis. Now, the current concensus appears to prefer an eclectic approach with a combination of teaching methods, testing techniques, case, economic, and rule-oriented content. Although the underlying tax laws throughout the world obviously differ, it is suggested that the possibility that effective delivery strategies may be universal.

Asymmetric Response: Explaining Corporate Social Disclosure by Multi-National Firms in Environmentally Sensitive Industries

The paper examines the determinants of corporate social disclosure (CSD) using a sample drawn from environmentally sensitive industries. It extends the traditional literature in two respects. First, it is international in scope, examining the accounting disclosure responses of multi-national companies to the pressures implied by the nature and scope of their operations. Second, variables measuring political risk and social development are developed so that these pressures can be measured, thereby introducing new dimensions to the literature. In common with previous studies, financial risk, size and other control variables are included. The relationships are tested econometrically utilising regression techniques not previously applied in the CSD literature but nonetheless more generally appropriate when using count dependent variables. Our results suggest that managers feel an unequal sense of responsibility to different constituencies and their disclosure priorities are determined by stock market accountability, lobbying power of their domestic audience and the political risk of their activities rather than the impact of their activities in countries of operation.

The Administration of Tax Systems

Tax systems have changed considerably in the past three decades. These fundamental changes have been the result of economic globalization, new political stances, and also of developments in public finance thought. The chapters in this volume offer a critical review of those changes from the perspectives of tax theory, policy and tax administration practice, and the political economy of taxation. The authors also consider what sort of reforms are worth undertaking in tax policy design, tax administration and enforcement, and the assignment of sub-national taxes.

Statistical fraud detection in a commercial lobster fishery

Abstract In this study we introduce the first step towards a statistical model for the reliability of fisheries data. We applied Benfords Law to catch data from the Atlantic Canadian lobster (Homarus americanus) fisherys lobster fishery areas (LFAs) 33 and 34 and compared our results to those using observations from the “grey zone” (a highly regulated lobster fishery shared by Canada and United States) and a fishery with a different regulatory regime (snow crab, Chionoecetes opilio). Non‐conformity with Benfords Law is often considered as an indicator of human manipulation of accounting data. We found that observations from the grey zone conformed to the distribution predicted by Benfords Law, whereas observations from snow crab and both lobster fishery areas did not conform.

Taxpayers' Behavioural Responses and Measures of Tax Compliance 'Gaps': A Critique

The work of Feldstein (1995, 1999) has stimulated substantial conceptual and empirical advances in economists’ approaches to analysing taxpayers’ behavioural responses to changes in tax rates. Meanwhile, a largely independent literature proposing and applying alternative measures of tax compliance has also developed in recent years, which has sought to provide tax agencies with tools to identify the extent of tax non-compliance as a first step to designing policies to improve compliance. In this context, measures of ‘tax gaps’ – the difference between actual tax collected and the potential tax collection under full compliance with the tax code – have become the primary measures of tax non-compliance via (legal) avoidance and/or (illegal) evasion. In this paper we argue that the tax gap as conventionally defined is conceptually flawed because it fails to capture behavioural responses by taxpayers. We show that, in the presence of such behavioural responses, tax gap measures both for indirect taxes (such as the ‘VAT-gap’) and direct (income) taxes exaggerate the degree of noncompliance. Further, where these conventional tax gap measures motivate reforms designed to increase the tax compliance rate, they will likely have a tax base reducing effect and hence generate a smaller increase in realised tax revenues than would be anticipated from the tax gap estimate.