Tax Compliance with Strategic Auditors: An Experimental Study

Abstract

The purpose of this study is to experimentally investigate an analytical model of tax compliance, assuming a game-theoretic situation between a taxpayer and a tax auditor. Specifically, we focus on the following three research questions. First, would the taxpayer’s behavior change if the tax auditor is a human or a computer, ceteris paribus? Second, how do changes of the tax rate affect the taxpayer’s and auditor’s behavior? Third, what influence does personality have on the tax compliance of taxpayers?The main results of this study are as follows. First, the taxpayer evades less when the tax auditor is a human than when it is a computer. Second, a decrease in the tax rate can increase the taxpayer’s tax compliance behavior. Third, the compliance rate increases among taxpayers who are younger, more trustworthy, and have lower levels of strategic reciprocity.