Who Evades Taxes and How Does Tax Auditing Affect Compliance? Evidence from Random Audits in Sweden
Tax evasion undermines public finances, costing even the wealthiest nations 10-15% of potential tax revenues. With income concentrated at the top of the distribution, understanding how evasion varies with income is key to designing effective and fair enforcement strategies. In this study, we contribute to our understanding of these issues by leveraging unique Swedish data, combining random tax audits of individuals and firms with rich administrative records.
Who Evades Taxes?
Using data on random tax audits, we identify drivers of tax evasion, such as income and tax rates. Firm-level audits, which have not yet been explored in the literature, paired with data on ownership structures allow us to map firm-level tax evasion to owners and unveil broader evasion patterns.
Who Bears the Cost?
We examine how penalties are settled — whether through personal savings or family support. At the firm level, we document responses such as wage cuts, employment adjustments, profit cuts or price increases, to assess whether the penalty costs fall on employees, owners or consumers.
Do Audits Enhance Compliance?
We estimate the causal effects of audits on future compliance, focusing on social norms. By analyzing spillover effects within social networks, we shed light on how audits can foster compliance beyond the tax payers actually audited.
Our objective is to advance the academic frontier while providing policymakers with actionable strategies for both compliance and fairness in the tax system.
Who Evades Taxes?
Using data on random tax audits, we identify drivers of tax evasion, such as income and tax rates. Firm-level audits, which have not yet been explored in the literature, paired with data on ownership structures allow us to map firm-level tax evasion to owners and unveil broader evasion patterns.
Who Bears the Cost?
We examine how penalties are settled — whether through personal savings or family support. At the firm level, we document responses such as wage cuts, employment adjustments, profit cuts or price increases, to assess whether the penalty costs fall on employees, owners or consumers.
Do Audits Enhance Compliance?
We estimate the causal effects of audits on future compliance, focusing on social norms. By analyzing spillover effects within social networks, we shed light on how audits can foster compliance beyond the tax payers actually audited.
Our objective is to advance the academic frontier while providing policymakers with actionable strategies for both compliance and fairness in the tax system.