Complexity, salience and income tax reporting behaviour: Evidence from a natural experiment

Tax Administration Research Centre (TARC)

Further details

Despite the adoption of prefilled tax forms in many countries, little is known about their effects on taxpayers' reporting behaviour. We estimate the effect of the income tax filing system on taxpayers' reporting behaviour, utilising data from a Finnish policy experiment. We find that receiving a (partially) prefilled income tax return lead to a significant reduction in non-prefilled deductions and self-reported income, and an increase in deductions that were prefilled in the new system. However, we do not find effects on individuals' total taxable income or taxes paid. We discuss complexity and compliance costs, salience effects, and changes in the opportunities for tax evasion as possible explanations for our findings.