Publications
Detailed Information
An optimal tax audit mechanism: models and some evidences
Cited 0 time in
Web of Science
Cited 0 time in Scopus
- Authors
- Issue Date
- 1992
- Citation
- Korean Journal of Policy Studies, Vol.7, pp. 55-72
- Abstract
- Since tax evasion, a moral hazard rooted in information asymmetry, causes inefficiency
as well as distorting income distribution, conscious policies are needed to
abate its harm. However, policy measures are limited-the penalty for tax evasion is
bounded above and monitoring resources are constrained. Focusing on the selfemployed,
we thus explore how to design a socially optimal tax audit mechanism.
With the 1989 Korean 'Family Income and Expenditure Survey,' we also examine:
(1) tax payment factors; (2) the income tax gap between self-employed (SELF)
households (HHs) and 'pay-as-you-earn' (PAYE) employee HHs; and (3) the effect
of the tax audit rule on compliance.
Though it saves audit resources and seizes evaders' risk premium, cutoff
audit-currently adopted in Korea featuring 'reporting guidelines'-is shown to
lower social welfare due to its built-in regressive bias. The line drawing hinders
self-compliance as well. Endogenous audit with the audit chance declining in
reported income without truncation is desirable for inequality-averse society. At
least, the cutoff must be kept secret to taxpayers.
The empirical analysis shows: (1) One-third of SELF HHs and 90% of temporary
employees in the nonfarm sector are beyond tax enforcement; (2) SELF HHs pay
less income tax than PAYE HHs by 46-60%, ceteris paribus, amounting to 18-30% of
income tax collection. The tax gap widens with income.; (3) The elasticity of
income tax payment to income is less than one for SELF HHs, conflicting with progressive taxation; (4) SELF HHs' elasticity is lower around their mean income than
at tails. This reflects the adverse effect of cutoff audit; and (5) Tax enforcement is
ineffective to capital income.
- ISSN
- 1225-5017
- Language
- English
- Files in This Item:
Item View & Download Count
Items in S-Space are protected by copyright, with all rights reserved, unless otherwise indicated.