2024/11/08 by William Boning, Nathaniel Hendren, Ben Sprung-Keyser +1 · 1 voice · 15 citations
Economics, Econometrics and Finance · Mathematics · Social Sciences · #Accounting #Audit #Business #Distribution (mathematics) #Economics #Fiscal Policy and Economic Growth #Gender, Labor, and Family Dynamics #Income tax #Market economy #Mathematics #Public economics #Taxation and Compliance Studies #Welfare
paper · pdf · doi:10.1093/qje/qjae037
published in The Quarterly Journal of Economics 140(1), 63-112 (Oxford University Press)
openalex publication_date 2024/11/08 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/22
Abstract We estimate the returns to IRS audits of taxpayers across the income distribution. We find an additional 1 spent auditing taxpayers above the 90th income percentile yields more than 12 in revenue, while audits of below-median income taxpayers yield 5. We construct our estimates by drawing from comprehensive internal accounting information and audit-level enforcement logs. We begin by estimating the average initial return to all audits of U.S. taxpayers filing in tax years 2010–2014. On average, 1 in audit spending initially raises 2.17 in revenue. Audits of high-income taxpayers are more costly, but the additional revenue raised more than offsets the costs. Audits of the 99–99.9th percentile have a 3.2:1 initial return; audits of the top 0.1% return 6.3:1. We then exploit the 40% audit reduction between tax years 2010 and 2014 to examine the returns to marginal audits. We find they exceed the returns to average audits. Revenues remain relatively unchanged, but marginal costs fall below average costs due to economies of scale. Next, we use randomly selected audits to examine the effect of an initial audit on future revenue. This individual deterrence effect produces at least three times more revenue than the initial audit. Deterrence effects are relatively consistent across the income distribution. This results in the 12:1 return above the 90th percentile. We conclude by estimating the welfare consequences of audits using the MVPF framework and comparing audits to other revenue-raising policies. We find that audits raise revenue at lower welfare cost.