| Even though unpaid corporate taxes in 1992 amounted to over {dollar}31 billion, little empirical work has studied factors influencing corporate tax compliance. In this dissertation I develop an econometric specification that uses aggregated data on noncompliance from possibly non-randomly audited corporations to assess the impact of specific variables on corporate compliance. This technique is applied to draw some preliminary conclusions about the effect of the IRS audit rate, among other things, on corporate tax compliance.; Chapter One provides an overview of corporate tax policy, evasion, and audit policy. It describes corporate audit programs used by the IRS, discusses other enforcement initiatives, and discusses IRS collection of assessed taxes.; Chapter Two introduces and develops a specification that can use aggregate sample data to explicitly test and adjust for nonrandom sample selection. This specification estimates the level of noncompliance among the population from which the nonrandom sample was drawn, an otherwise unobservable variable. This specification's property of contemporaneous correlation between the independent variable and the error term causes the error terms to be heteroskedastic and compromises the validity of a Hausman test of audit rate endogeneity. Finally, extensions of this model that allow the examination of factors such as IRS audit policy on population noncompliance are derived.; Chapter Three applies the model to analyze the nonrandomness of IRS auditing and factors that affect corporate compliance. Due to the limited number of observations available for each audit class, caution should be used when drawing conclusions from this evidence, and models could not be estimated for two classes. However, the results suggest that the IRS is able to nonrandomly select relatively less compliant large corporations for audits. This test for an endogenous audit rate suggests that the audit rate may be endogenous for large corporations with assets over {dollar}100 million, but is probably exogenous for smaller corporations. It also appears that only the largest corporations respond to increases in IRS audit rates by increasing compliance. |
