The Characteristics of a Fair and Efficient Tax Auditing Information System as a Tool against Tax Evasion: A Theoretical Framework
Economic growth and social evolution are connected to trust relationships in a society. The quality of the accounting information, the tax information system and the tax audit mechanism evolve multiple benefits in an economy. Tax evasion, the illegal practice where people and companies do not pay taxes, is a crime because of the negative effect in economy and society. In this paper, we describe a theoretical framework on the characteristics of a fair and efficient tax auditing information system which could be a tool against tax evasion, a tool for an economy to grow, especially in countries that face fluctuations in economic activity. We conclude that a fair and efficient tax auditing information system increases the reliability of tax administration, improves taxpayers’ tax compliance and causes a developmental trajectory for the economy.
[1] Artavanis, N., Morse, A. & Tsoutsoura, M. (2015), Tax Evasion across Industries: Soft Credit Evidence from Greece,NBER Working Paper No. 21552, http://www.nber.org/papers/w21552.
[2] Schneider, F. & Buehn, A. (2016), Estimating the Size of the Shadow Economy:Methods, Problems and Open Questions, IZA DP No. 9820.
[3] Kaplanoglou, G. and Rapanos, V. (2015), Why do people evade taxes? New experimental evidence from Greece, Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Vol. 56, issue C, pp. 21-32.
[4] Internal Revenue Service, 2007, Reducing the federal tax gap: A report on improving voluntary compliance, August 2, 2007.
[5] Feige, E. and Cebula, R. (2011), America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S, MPRA Paper No. 29672.
[6] Becker, G. (1968), Crime and Punishment: An Economic Approach, Journal of Political Economy, Vol. 76, no. 2 , pp. 169-217.
[7] Allingham, M. and Sandmo, A. (1972), Income Tax Evasion: A Theoretical Analysis, Journal of Public Economics, 1(3-4), pp. 323-338.
[8] Myles, G. (1995), Public Economics, Cambridge University Press.
[9] Cowell, F.A. (1990), Cheating the government. The economics of tax evasion. Cambridge, MA: MIT Press.
[10] Pommerehne, W.W. & Weck-Hannemann, H. (1996), Tax rates, tax administration and income tax evasion in Switzerland, Public Choice, Vol. 88, pp.161–170.
[11] Pestieau, P., Possen, U., Slutsky, S., (1994), Optimal Differential Taxes and Penalties, Public Finance/Finances Publiques, vol. 49 (Supplement), pp. 15-27.
[12] Zaklan, G., Westerhoff, F. & Stauffer, D. (2009), Analysing tax evasion dynamics via the Ising model, Journal of Economic Interaction and Coordination, vol. 4, No 1.
[13] Andrei, A., Comer, K. & Koehler, M. (2014), An agent-based model of network effects on tax compliance and evasion, Journal of Economic Psychology, Vol. 40, pp.119-133.
[14] Korobow, A., Johnson, C. and Axtell, R. (2007), An Agent–Based Model of Tax Compliance with Social Networks, National Tax Journal, Vol. 60, No. 3, pp. 589-610.
[15] Hokamp, S. and Pickhardt, M. (2010), Income Tax Evasion in a Society of Heterogeneous Agents – Evidence from an Agent-based Model, International Economic Journal, Vol. 24, pp. 541-553.
[16] Gupta, R. (2008), Tax evasion and financial repression, Journal of Economics and Business, Vol. 60, Issue 6, pp. 517-535.
[17] Aim, J., McClelland, G. and Schulze, W. (1992), Why do people pay taxes?, Journal of Public Economics, Vol. 48, pp.21-38.
[18] Snow, A. and Warren, R. (2005), Ambiguity about Audit Probability, Tax Compliance and Taxpayer Welfare, Economic Inquiry, Vol. 43, pp. 865–871.
[19] Slemrod, J., Blumenthal, M. and Christian, C. (2001), Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota, Journal of Public Economics, Vol. 79, Issue 3, pp. 455-483.
[20] Saez, E. (2010), Do Taxpayers Bunch at Kink Points?, American Economic Journal: Economic Policy, Vol. 2, pp. 180–212.
[21] Naritomi, J. (2015), Consumers as Tax Auditors, LSE Working Paper.
[22] Kumler, T., Verhoogen, E. and Frıas, J. (2015), Enlisting Workers in Monitoring Firms: Payroll Tax Compliance in Mexico, Columbia University Academic Commons, Working Paper.
[23] Carrillo, P., Pomeranz, D. and Singhal, M. (2014), Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement, NBER Working Paper No 20624.
[24] Almunia, M., and Rodriguez, D. (2014), Heterogeneous Responses to Effective Tax Enforcement: Evidence from Spanish Firms, Bank of Spain Working Paper no. 14919.
[25] Aparicio, G. (2012), Monitoring and Its Interaction with Punishment in Tax Enforcement: Evidence from a Regression Discontinuity Design, Working Paper, Georgetown University.
[26] Yang, D. (2008a), Can Enforcement Backfire? Crime Displacement in the Context of Customs Reform in the Philippines, Review of Economics and Statistics, Vol. 90, pp. 1–14.
[27] Yang, D. (2008b), Integrity for Hire: An Analysis of a Widespread Customs Reform, Journal of Law and Economics, Vol. 51, pp. 25–58.
[28] Casaburi, L and Troiano, U. (2016), Ghost-House Busters: The Electoral Response To A Large Anti–Tax Evasion Program, The Quarterly Journal of Economics, Vol. 131, Issue 1, pp. 273–314.
[29] Floropoulos, J.,Spathis, C., Halvatzis, D. Tsipouridou, M. (2010), Measuring the success of the Greek Taxation Information System, International Journal of Information Management, Vol. 30, pp. 47–56.
[30] DeLone, W.& McLean, E. (2003), The DeLone and McLean Model of information systems success: A ten year update, Journal of Management Information Systems, Vol. 19, No 4, pp. 9–30.
[31] Seddon, P. (1997), A respecification and extension of the DeLone and McLean model of IS success, Information Systems Research, Vol. 8, No 3, pp. 240–253.
[32] Bailey, J. E., & Pearson, S. W. (1983), Development of a tool for measuring and analyzing computer user satisfaction, Management Science, Vol. 29, No 5, pp. 530–545.
[33] Rai, A., Lang, S. &Welker, R. (2002), Assessing the validity of IS success models: An empirical test and theoretical analysis, Information Systems Research, Vol.13, No 1, pp. 50–69.
[34] Zhang, Z., Leeb, M. K. O., Huanga, P., Zhang, L., & Huang, X. (2005), A framework of ERP systems implementation success in China: An empirical study, International Journal of Production Economics, Vol. 98, pp. 56–80.
[35] Healy, P. and Wahlen, J. (1999), A review of the earnings management literature and its implications for standard settings, Accounting Horizons, Vol. 13, No 4, pp. 365-383.
[36] Tendeloo, B. and Vanstraelen, A. (2005), Earnings management under German GAAP versus IFRS, European Accounting Review, Vol. 14, No 1, pp. 155-180.
[37] Choi, B., Collins, D.W. and Johnson, W.B. (1997), Valuation implications of reliability differences: the case of non-pension postretirement obligations, The Accounting Review, Vol. 72, No 3, pp. 351-383.
[38] Nichols, D. and Wahlen, J. (2004), How do earnings numbers relate to stock returns? A Review of classic accounting research with updated evidence, Accounting Horizons, Vol.18, No 4, pp.263-286.
[39] Hirst, D., Hopkins, P. and Wahlen, J. (2004), Fair values, income measurement, and bank analysts’ risk and valuation judgments, The Accounting Review, Vol. 79, No 2, pp. 453-472.
[40] Gaeremynck, A. and Willekens, M. (2003), The Endogenous Relationship between Audit-Report Type and Business Termination: Evidence on Private Firms in a Non- Litigious Environment, Accounting and Business Research, Vol. 33, No 1, pp. 65-79.
[41] Beretta, S. and Bozzolan, S. (2004), A framework for the analysis of firm risk communication, The International Journal of Accounting, Vol. 39, pp. 265-288.
[42] Cohen, J., Krishnamorthy, G. and Wright, A. (2004), The corporate governance mosaic and financial reporting quality, Journal of Accounting Literature, Vol. 23, pp. 87-152.
[43] Maes, A., & Poels, G. (2007), Evaluating quality of conceptual modelling scripts based on user perceptions, Data and Knowledge Engineering, Vol. 63, pp. 769–792.
[44] DeLone, W., & McLean, E. (1992), Information systems success: The quest for the dependent variable, Information Systems Research, Vol. 3, No 1, pp. 60–95.
[45] Chang I.-C, Li Y.-C, Hung W-F., Hwang H-G (2005), An empirical study on the impact of quality antecedents on tax payers’ acceptance of Internet tax-filing systems, Government Information Quarterly, Vol. 22, pp. 389–410.
[46] Schneider, F., Raczkowski, K. & Mróz, B. (2015), Shadow economy and tax evasion in the EU, Journal of Money Laundering Control, Vol. 18 Issue: 1,pp.34-51.
[47] Pappa, E., Sajedi, R. and Vella, E. (2015), Fiscal consolidation with tax evasion and corruption, Journal of International Economics, Volume 96, Supplement 1, pp. 56-75.
[1] Artavanis, N., Morse, A. & Tsoutsoura, M. (2015), Tax Evasion across Industries: Soft Credit Evidence from Greece,NBER Working Paper No. 21552, http://www.nber.org/papers/w21552.
[2] Schneider, F. & Buehn, A. (2016), Estimating the Size of the Shadow Economy:Methods, Problems and Open Questions, IZA DP No. 9820.
[3] Kaplanoglou, G. and Rapanos, V. (2015), Why do people evade taxes? New experimental evidence from Greece, Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Vol. 56, issue C, pp. 21-32.
[4] Internal Revenue Service, 2007, Reducing the federal tax gap: A report on improving voluntary compliance, August 2, 2007.
[5] Feige, E. and Cebula, R. (2011), America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S, MPRA Paper No. 29672.
[6] Becker, G. (1968), Crime and Punishment: An Economic Approach, Journal of Political Economy, Vol. 76, no. 2 , pp. 169-217.
[7] Allingham, M. and Sandmo, A. (1972), Income Tax Evasion: A Theoretical Analysis, Journal of Public Economics, 1(3-4), pp. 323-338.
[8] Myles, G. (1995), Public Economics, Cambridge University Press.
[9] Cowell, F.A. (1990), Cheating the government. The economics of tax evasion. Cambridge, MA: MIT Press.
[10] Pommerehne, W.W. & Weck-Hannemann, H. (1996), Tax rates, tax administration and income tax evasion in Switzerland, Public Choice, Vol. 88, pp.161–170.
[11] Pestieau, P., Possen, U., Slutsky, S., (1994), Optimal Differential Taxes and Penalties, Public Finance/Finances Publiques, vol. 49 (Supplement), pp. 15-27.
[12] Zaklan, G., Westerhoff, F. & Stauffer, D. (2009), Analysing tax evasion dynamics via the Ising model, Journal of Economic Interaction and Coordination, vol. 4, No 1.
[13] Andrei, A., Comer, K. & Koehler, M. (2014), An agent-based model of network effects on tax compliance and evasion, Journal of Economic Psychology, Vol. 40, pp.119-133.
[14] Korobow, A., Johnson, C. and Axtell, R. (2007), An Agent–Based Model of Tax Compliance with Social Networks, National Tax Journal, Vol. 60, No. 3, pp. 589-610.
[15] Hokamp, S. and Pickhardt, M. (2010), Income Tax Evasion in a Society of Heterogeneous Agents – Evidence from an Agent-based Model, International Economic Journal, Vol. 24, pp. 541-553.
[16] Gupta, R. (2008), Tax evasion and financial repression, Journal of Economics and Business, Vol. 60, Issue 6, pp. 517-535.
[17] Aim, J., McClelland, G. and Schulze, W. (1992), Why do people pay taxes?, Journal of Public Economics, Vol. 48, pp.21-38.
[18] Snow, A. and Warren, R. (2005), Ambiguity about Audit Probability, Tax Compliance and Taxpayer Welfare, Economic Inquiry, Vol. 43, pp. 865–871.
[19] Slemrod, J., Blumenthal, M. and Christian, C. (2001), Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota, Journal of Public Economics, Vol. 79, Issue 3, pp. 455-483.
[20] Saez, E. (2010), Do Taxpayers Bunch at Kink Points?, American Economic Journal: Economic Policy, Vol. 2, pp. 180–212.
[21] Naritomi, J. (2015), Consumers as Tax Auditors, LSE Working Paper.
[22] Kumler, T., Verhoogen, E. and Frıas, J. (2015), Enlisting Workers in Monitoring Firms: Payroll Tax Compliance in Mexico, Columbia University Academic Commons, Working Paper.
[23] Carrillo, P., Pomeranz, D. and Singhal, M. (2014), Dodging the Taxman: Firm Misreporting and Limits to Tax Enforcement, NBER Working Paper No 20624.
[24] Almunia, M., and Rodriguez, D. (2014), Heterogeneous Responses to Effective Tax Enforcement: Evidence from Spanish Firms, Bank of Spain Working Paper no. 14919.
[25] Aparicio, G. (2012), Monitoring and Its Interaction with Punishment in Tax Enforcement: Evidence from a Regression Discontinuity Design, Working Paper, Georgetown University.
[26] Yang, D. (2008a), Can Enforcement Backfire? Crime Displacement in the Context of Customs Reform in the Philippines, Review of Economics and Statistics, Vol. 90, pp. 1–14.
[27] Yang, D. (2008b), Integrity for Hire: An Analysis of a Widespread Customs Reform, Journal of Law and Economics, Vol. 51, pp. 25–58.
[28] Casaburi, L and Troiano, U. (2016), Ghost-House Busters: The Electoral Response To A Large Anti–Tax Evasion Program, The Quarterly Journal of Economics, Vol. 131, Issue 1, pp. 273–314.
[29] Floropoulos, J.,Spathis, C., Halvatzis, D. Tsipouridou, M. (2010), Measuring the success of the Greek Taxation Information System, International Journal of Information Management, Vol. 30, pp. 47–56.
[30] DeLone, W.& McLean, E. (2003), The DeLone and McLean Model of information systems success: A ten year update, Journal of Management Information Systems, Vol. 19, No 4, pp. 9–30.
[31] Seddon, P. (1997), A respecification and extension of the DeLone and McLean model of IS success, Information Systems Research, Vol. 8, No 3, pp. 240–253.
[32] Bailey, J. E., & Pearson, S. W. (1983), Development of a tool for measuring and analyzing computer user satisfaction, Management Science, Vol. 29, No 5, pp. 530–545.
[33] Rai, A., Lang, S. &Welker, R. (2002), Assessing the validity of IS success models: An empirical test and theoretical analysis, Information Systems Research, Vol.13, No 1, pp. 50–69.
[34] Zhang, Z., Leeb, M. K. O., Huanga, P., Zhang, L., & Huang, X. (2005), A framework of ERP systems implementation success in China: An empirical study, International Journal of Production Economics, Vol. 98, pp. 56–80.
[35] Healy, P. and Wahlen, J. (1999), A review of the earnings management literature and its implications for standard settings, Accounting Horizons, Vol. 13, No 4, pp. 365-383.
[36] Tendeloo, B. and Vanstraelen, A. (2005), Earnings management under German GAAP versus IFRS, European Accounting Review, Vol. 14, No 1, pp. 155-180.
[37] Choi, B., Collins, D.W. and Johnson, W.B. (1997), Valuation implications of reliability differences: the case of non-pension postretirement obligations, The Accounting Review, Vol. 72, No 3, pp. 351-383.
[38] Nichols, D. and Wahlen, J. (2004), How do earnings numbers relate to stock returns? A Review of classic accounting research with updated evidence, Accounting Horizons, Vol.18, No 4, pp.263-286.
[39] Hirst, D., Hopkins, P. and Wahlen, J. (2004), Fair values, income measurement, and bank analysts’ risk and valuation judgments, The Accounting Review, Vol. 79, No 2, pp. 453-472.
[40] Gaeremynck, A. and Willekens, M. (2003), The Endogenous Relationship between Audit-Report Type and Business Termination: Evidence on Private Firms in a Non- Litigious Environment, Accounting and Business Research, Vol. 33, No 1, pp. 65-79.
[41] Beretta, S. and Bozzolan, S. (2004), A framework for the analysis of firm risk communication, The International Journal of Accounting, Vol. 39, pp. 265-288.
[42] Cohen, J., Krishnamorthy, G. and Wright, A. (2004), The corporate governance mosaic and financial reporting quality, Journal of Accounting Literature, Vol. 23, pp. 87-152.
[43] Maes, A., & Poels, G. (2007), Evaluating quality of conceptual modelling scripts based on user perceptions, Data and Knowledge Engineering, Vol. 63, pp. 769–792.
[44] DeLone, W., & McLean, E. (1992), Information systems success: The quest for the dependent variable, Information Systems Research, Vol. 3, No 1, pp. 60–95.
[45] Chang I.-C, Li Y.-C, Hung W-F., Hwang H-G (2005), An empirical study on the impact of quality antecedents on tax payers’ acceptance of Internet tax-filing systems, Government Information Quarterly, Vol. 22, pp. 389–410.
[46] Schneider, F., Raczkowski, K. & Mróz, B. (2015), Shadow economy and tax evasion in the EU, Journal of Money Laundering Control, Vol. 18 Issue: 1,pp.34-51.
[47] Pappa, E., Sajedi, R. and Vella, E. (2015), Fiscal consolidation with tax evasion and corruption, Journal of International Economics, Volume 96, Supplement 1, pp. 56-75.
@article{"International Journal of Business, Human and Social Sciences:78849", author = "Dimitris Balios and Stefanos Tantos", title = "The Characteristics of a Fair and Efficient Tax Auditing Information System as a Tool against Tax Evasion: A Theoretical Framework", abstract = "Economic growth and social evolution are connected to trust relationships in a society. The quality of the accounting information, the tax information system and the tax audit mechanism evolve multiple benefits in an economy. Tax evasion, the illegal practice where people and companies do not pay taxes, is a crime because of the negative effect in economy and society. In this paper, we describe a theoretical framework on the characteristics of a fair and efficient tax auditing information system which could be a tool against tax evasion, a tool for an economy to grow, especially in countries that face fluctuations in economic activity. We conclude that a fair and efficient tax auditing information system increases the reliability of tax administration, improves taxpayers’ tax compliance and causes a developmental trajectory for the economy.
", keywords = "Auditing information system, auditing mechanism, tax evasion, taxation, quality of accounting information.", volume = "13", number = "6", pages = "807-4", }
