Tax Compliance as a Coordination Game
at the Andrew Young School of Policy Studies

"Tax Compliance as a Coordination Game" (pdf)

by James Alm and Michael McKee
October 2003

Keywords: tax compliance, coordination game

This paper uses laboratory experiments to investigate compliance behavior when returns are selected for audit based upon the deviation of each individual's tax report from the average report of all other taxpayers. Our experimental results indicate that individuals find it difficult to coordinate on the zero-compliance equilibrium. However, pre-game communication that mimics information-sharing provided by tax guides provides a mechanism that allows such coordination. Nevertheless, the tax authority is able to overcome this taxpayer coordination by a subtle change is its audit rule, a change that targets the audits in a different way without increasing the number of audits.

Comments and questions regarding this paper may be directed to James Alm at jalm@gsu.edu.