New Tax Administration Research Centre hosts international workshop

Michael Keen of the International Monetary Fund who is giving the keynote address commented: “No one doubts the importance of good tax administration, but we know remarkably little about what exactly it is. Research in the area has been marked more by anecdotes, platitudes and management fashions than by the rigorous thinking and carefully marshalled evidence that we take for granted in analyses of tax policy. But now things are changing, in terms of not only public and academic interest in tax administration but also the methodologies that can be brought to bear on the topic. In both timing and expertise, the Centre is ideally-placed to spearhead real progress in what is for all countries a core aspect of public policy."

Key papers at the workshop will present the following findings:

• A survey of more than 3,000 charitable donors shows that the effect of tax incentives for donations to charity are larger if offered as a "match" to the charity on the individual's donation, rather than as a rebate for the donor to reclaim. The explanation is that most donors don't adjust the size of donation when tax incentives change. Even so, the research rejects the view that tax incentives are irrelevant to giving. It suggests that donors rationally respond to incentives but changing behaviour is a costly activity so donors only make changes when the change in tax incentive is big.

• Tax planning has been highlighted by the UK decision to reduce the 50% rate of income tax, as well as by some high profile individual cases. Some argue that such planning can improve the work incentives of highly paid workers. The impact of tax planning on the tax rate that the government might wish to apply to high earners is analysed. It is shown that tax planning might well result in a higher chosen nominal tax rate but that the effective tax rate and the revenue raised will still fall.

• Methods of calculating direct tax gaps that rely on estimating 'hidden income' using macroeconomic indicators have large margins of error so do not provide useful estimates for tax policy or compliance assessment purposes. A reliable estimate of the direct tax gap must be computed using a 'bottom-up' approach e.g. from random taxpayer audits. Even when based on tax enforcement data measures of the direct tax gap should be used with caution in evaluating the performance of tax agencies and agency staff.
 
TARC has been created to develop improved methods for tax administration and to build capacity in tax administration research. The centre, a partnership between the University of Exeter and the Institute for Fiscal Studies, has a multi-disciplinary research team that includes economists, accountants, experimentalists, and psychologists. TARC also has exceptionally strong international connections and is developing links with experts at home and abroad.

Professor Gareth Myles, TARC Director said: "The new Centre will provide high quality research to inform future tax policy which will result in a better customer experience, improved economic performance, and a more equal system."

For more information, please visit the TARC website.