Self-selection with measurement errors - A microeconometric analysis of the decision to seek tax assistance and its implications for tax compliance

A joint analysis of tax preparation mode and federal income tax noncompliance is performed using individual level audit data. To control for the nonrandom allocation of taxpayers to their chosen modes of tax preparation, an endogenous switching specification is employed. The framework is then extended to control for two separate forms of measurement error. First, although behavioral models of tax noncompliance typically account only for deliberate misreporting, audit-based measures of noncompliance include both deliberate and unintentional reporting violations. A statistical procedure is developed to distinguish between these two alternative sources of noncompliance. Second, auditors are not always successful in uncovering noncompliance when it is present. A detection controlled estimation procedure is employed to account for detection errors. (C) 1997 Elsevier Science S.A.