Economic and behavioral characteristics of noncompliant taxpayers: Evidence from the 1997 Arkansas Tax Penalty Amnesty Program

This study investigates economic and behavioral factors of noncompliant taxpayers in order to assist tax policy makers in reducing the level of noncompliance and to advance the research on tax compliance behavior. Three papers are presented that use tax return and behavioral survey data from participants in the 1997 Arkansas tax penalty amnesty program. Prior tax compliance research has yielded inconsistent results in regard to the direction and influence of taxpayer characteristics associated with noncompliance. The inclusion of all noncompliant taxpayers in one noncompliance model is hypothesized to be problematic. To address this issue the first study profiles intentional and unintentional noncompliant taxpayer characteristics. Another potential explanation for the inconsistencies reported in the compliance literature is that behavioral variables are excluded from the compliance model resulting in an inaccurately specified noncompliance model. The second paper identifies factors associated with the level of noncompliance. This paper uses a regression methodology that includes behavioral and tax return factors as indicator variables. Separate regression models are also employed for intentional and unintentional noncompliant taxpayers. The third paper concludes this study with policy implications by identifying characteristics of noncompliant taxpayers influenced by tax policy initiatives.;The results include a profile of intentional and unintentional noncompliant taxpayers. The results of this study also suggest that older taxpayers are the most responsive to proactive tax compliance policies that motivate compliance behavior while younger taxpayers are more influenced by reactive strategies that enforce tax laws. In addition, evidence from this study suggests that an accurately specified noncompliance model should (1) include both behavioral and tax return variables and (2) separate intentional and unintentional noncompliant taxpayers. These two findings move the compliance literature a step closer towards explaining the inconsistencies reported in prior tax compliance research.