Bearing the burden — Implications of tax reporting institutions on evasion and incidence - UTU Research Portal

A1 Refereed original research article in a scientific journal

Bearing the burden — Implications of tax reporting institutions on evasion and incidence

Authors: Kotakorpi Kaisa, Nurminen Tuomas, Miettinen Topi, Metsälampi Satu

Publisher: Elsevier

Publication year: 2024

Journal:: Journal of Economic Behavior and Organization

Journal name in source: Journal of Economic Behavior & Organization

Volume: 220

First page : 81

Last page: 134

ISSN: 0167-2681

eISSN: 1879-1751

DOI: https://doi.org/10.1016/j.jebo.2024.01.021

Web address : https://doi.org/10.1016/j.jebo.2024.01.021

Self-archived copy’s web address: https://research.utu.fi/converis/portal/detail/Publication/387004310

Abstract

We investigate effects of tax reporting institutions on evasion and incidence using an experimental double auction market. We find that 28% of the sellers are truthful when only sellers report, but that 88% and 64% of them are truthful under costless and costly third-party reporting by buyers, respectively. Reporting behavior therefore responds to the intensity of deterrence. However, we find that prices do not fully reflect the lower taxes of the evaders. Thus, when sellers can unilaterally evade taxes, tax incidence deviates from the prediction of the standard model, and there is deadweight loss even if tax revenue is low. Pricing, incidence, and reporting patterns in all treatments are consistent with a model with heterogeneous lying costs, or a combination of lying costs and image concerns that give rise to a motivation to appear honest.

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Funding information in the publication:
Kotakorpi gratefully acknowledges financial support from the Research Council of Finland (grant nos. 277283 and 346250), Metsälampi from the Finnish Cultural Foundation (grant no. 00180719), Miettinen from the Yrjö Jahnsson Foundation (grant no. 20197200), Nurminen from the Emil Aaltonen Foundation (grant no. 190171), the Society of Swedish Literature in Finland (grant no. 1581), and the Yrjö Jahnsson Foundation (grant nos. 20177015 and 20197206).