Abstract
Tax noncompliance affects not only government revenue but also the fairness of the tax system. However, empirical studies on noncompliance with the estate tax are rare. This study utilizes the audited estate tax returns for 1993-1998 and 2003-2005 from Taiwan's National Tax Administration to analyze the determinants and magnitude of the underreporting of estates. We find that the underreporting of estates increases with marginal tax rates and the amount of the estate, but declines with tax auditing. The results are consistent with most of previous theoretical and empirical studies on non-compliance with the income tax and the estate tax. Previous studies generally find that a tax increase raises taxpayers' incentive to underreport estates owing to a higher marginal reward of successful evasion. In contrast, a higher tax audit probability can effectively deter taxpayers' underreporting behavior. One limitation of this study is that the data from audited tax returns may reveal only a part of actual noncompliance.