The runaway taxpayer

In order to analyse the determinants of tax evasion, the existing literature on individual tax compliance typically takes a prior-to-audit point of view. This paper focuses on a post-audit, post-detection -so far unexplored- framework, by investigating what happens after tax evasion has been discovered and noncompliant taxpayers are asked to pay their debts. We fi rst develop a two-period dynamic model of individual choice, considering an individual that has been already audited and detected as tax evader, who knows that Tax Authorities are looking for her to cash the due amount. We derive the optimal decision of running away in order to avoid paying the bill, and show that the experience of a prior tax notice reduces the probability to behave as a scofflaw. We then exploit information on post-audit, post-detection tax compliance provided by an Italian collection agency for the period 2004-2007 to empirically test the effectiveness of the prior notice against scofflaws. The evidence from alternative logit model speci cations supports our theoretical prediction: experiencing a tax notice reduces the probability of running away by about 10%. However, this may prove to be insufficient to discourage some individuals to runaway in order to avoid paying their dues.