Easy come, easy go: non‐compliance, overwithholding and income tax revenue in Germany

Abstract

This paper examines tax non‐compliance among individuals in Germany who were legally required to file a tax return but failed to do so. Using administrative tax data and simulation‐based analysis, we quantify the financial implications of non‐compliance for approximately 1.5 million affected individuals. Findings suggest that over 690,000 non‐filers would have been financially better off had they complied with their obligation to file a tax return. Tax revenue is about 100 million euros higher than it would be under full compliance. Using a control group of comparable compliers, a probit model indicates a statistically significant and positive relationship between (potential) gains from non‐compliance and non‐compliant behaviour. The study offers new evidence on non‐filers based on large‐scale administrative data rather than audits or surveys.