TRUE POSITIVES AND FALSE ALARMS IN THE DETECTION OF TAX EVASION

The probability of errors in tax returns has not been modeled explicit ly before. However, corrections on individual tax returns, made by the fiscal authorities, may be related both to tax evasion and to errors made by the taxpayers. The probabilities of detecting tax evasion (tru e positives) and errors in tax returns (partly interpreted as false al arms) are specified and parametrized by variables known from the liter ature. In an empirical survey, the response to a questionnaire has bee n combined with information from the tax administration regarding tax returns. Taxpayers' willingness and ability to conceal income from the tax authorities are key factors with respect to tax evasion. Furtherm ore, the model enables the estimation of tax evasion probability, give n the level of education and the opportunity to conceal income. The pr obabilities of tax evasion and errors could be explained to some exten t.