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Estimating aggregate tax compliance costs: a new approach using a state space model


This article aims to develop a general statistical method for estimating tax compliance costs in Australia on an annual basis. The proposed approach represents an attractive alternative to the traditional, large-scale survey method which is known to be expensive and time-consuming to conduct. A state space mode is applied to a series of tax administrative costs, approximated by annual expenditures incurred by the Australian Taxation Office. This produces estimated annual growth rates of Australian’s tax compliance costs. Combining the growth rates obtained from the state space model with a comprehensive survey-based estimate of tax compliance costs in a particular year, an annual series of tax compliance costs can then be generated. Note that the proposed method has general applicability and the use of Australian data is a mere illustration.

Author profiles

Hao Wu
Hao is an Associate Lecturer, Discipline of Business Analytics, Business School, University of Sydney.
Current at 1 April 2017
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Binh Tran-Nam
Binh is a Professor, School of Taxation & Business Law, UNSW Australia and RMIT Asia Graduate Centre, RMIT University Vietnam, and International Fellow, Tax Administration Research Centre, Exeter University-Institute for Fiscal Studies. - Current at 03 November 2016
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