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The cost of compliance is an essential variable to consider when administering a tax system. One recent study estimates that the yearly federal tax compliance burden in the US exceeds $431 billion dollars, and this cost does not include the potential greatest cost of all – changes in taxpayer behavior that reduces economic efficiency (Laffer, Winegarden, & Childs, 2011). One example of such behavior is the renunciation of US citizenship due to the impact of the Foreign Account Tax Compliance Act (FATCA) reporting requirements. Using this context, our study examines how FATCA compliance costs can affect taxpayer behavior in a manner that reduces economic efficiency. We collected responses from 197 experienced US taxpayers living in the US. Our study finds that when tax compliance costs are high, taxpayers may be more likely to renounce their citizenship to avoid FATCA reporting requirements. We further learn that tax compliance costs may increase the likelihood of citizenship renunciation even in the presence of a minimal US tax burden. Supplemental mediation analysis demonstrates that one's perceived fairness of compliance does not mediate the effect of high compliance costs on a taxpayer's renunciation decision; however, one's perceived fairness of compliance and fear of sanctions, collectively, partially explain the effect of tax burden on the renunciation decision. In addition, we find that ethics, the perceived probability of detection, and average income level affect the decision to renounce citizenship. Our findings suggest broader impacts of tax policy and provide a foundation for future research to further explore domestic and foreign tax compliance behaviors.

This paper examines the corporate income tax compliance costs and their determinants by analyzing survey and financial statements data from firms operating in Greece. We find that corporate tax compliance costs are of considerable size and vary with several firm-specific characteristics, including the firm’s size, its age, the sector in which it operates, its location, and its legal form. The paper intends to raise awareness regarding the impact of tax compliance costs, especially for countries, such as Greece, that were significantly affected by the economic and financial crisis.

Regulators can adjust penalties to compensate for incomplete monitoring of regulated parties that are subject to legal rules, but compensating penalty adjustments often are unavailable when regulated parties are subject to legal standards. Incomplete monitoring consequently invites greater noncompliance under standards than under rules. This chapter develops a model that quantifies some of the specific tradeoffs that regulators face in designing standards regimes under incomplete monitoring. The model also considers the extent to which suboptimal compliance due to incomplete monitoring is likely to result in deadweight loss in different settings.

Financial assurance rules, also known as financial responsibility or bonding requirements, foster cost internalization by requiring potential polluters to demonstrate the financial resources necessary to compensate for environmental damage that may arise in the future. Accordingly, assurance is an important complement to liability rules, restoration obligations, and other regulatory compliance requirements. The paper reviews the need for assurance, given the prevalence of abandoned environmental obligations, and assesses the implementation of assurance rules in the United States. From the standpoint of both legal effectiveness and economic efficiency, assurance rules can be improved. On the whole, however, cost recovery, deterrence, and enforcement are significantly improved by the presence of existing assurance regulations.

Purpose – To estimate the impact of diabetic drug adherence on hospitalizations, emergency room (ER) visits, and hospital costs.

Methods – It is often difficult to measure the impact of drug adherence on hospitalizations since both adherence and hospitalizations may be correlated with unobservable patient severity. We control for such unobservables using propensity score methods and instrumental variables for adherence such as drug coinsurance levels and direct-to-consumer advertising.

Findings – We find a significant bias due to unobservable severity in that patients with more severe health are more apt to comply with medications. Thus, the relationship between adherence and hospitalization will be underestimated if one does not control for unobservable severity. Overall, we find that increasing diabetic drug adherence from 50% to 100% reduces the hospitalization rate by 23.3% from 15% to 11.5%. ER visits reduce by 46.2% from 17.3% to 9.3%. Although such an increase in adherence increases diabetic drug spending by $776 a year per diabetic, the cost savings for averted hospitalizations and ER visits are $886 per diabetic, a cost offset of $1.14 per $1.00 spent on diabetic drugs.

Originality – Most of the drug cost-offset literature focuses only on the impact of cost-sharing and drug spending on cost-offsets, making it impossible to back-out the empirical impact of actual drug adherence on cost-offsets. In this chapter, we estimate the direct impact of adherence on hospitalizations and costs.

A large literature studies why firms self-regulate and “signal green.” However, it has ignored that regulators have enforcement discretion, and may act strategically. We fill this gap. We build a game theoretic model of whether a firm should signal its type through substantial self-regulation. We find self-regulation is a double-edged sword: it can potentially preempt legislation, but it can also lead regulators to demand higher levels of compliance from greener firms if preemption fails. We show how self-regulatory decisions depend upon industry characteristics and political responsiveness to corporate environmental leadership. We have made a number of simplifying assumptions. We assume activist groups cannot challenge regulatory flexibility in court, and that regulatory penalties are fixed and are not collected by the regulator. Firms with low compliance costs confront a tradeoff regarding self-regulation. They can blend in with the rest of the industry, and take few self-regulatory steps. This reduces the risk of regulation somewhat, and preserves their ability to obtain regulatory flexibility should regulation be imposed. Alternatively, they can step up with substantial self-regulation. This better mitigates the risk of regulation, but at the risk of signaling low costs and becoming a target for stringent enforcement should regulation pass. Recent work has found negative market reactions to corporate claims of voluntary emissions reductions, despite the conventional wisdom that it “pays to be green.” We offer a new explanation to scholars and managers: regulatory discretion may undermine the ability of industry self-regulation to profitably preempt mandatory regulatory requirements.

The Food Safety Modernization Act (FSMA), designed to establish and enforce food-safety standards for foods from domestic and foreign origins, focuses federal regulation on the prevention of food contamination. Many concerns have been expressed about how FSMA-compliance costs will affect the economic viability of very small and small farms, which have higher average compliance costs than do larger farms, thus marginalizing their ability to compete in the marketplace. The purpose of this study is to estimate how FSMA will affect differently sized US and international tomato producers in the fresh-tomato industry. A simulation approach is applied for changes of quantities demanded, revenues, and profits for differently sized farms based on elasticities estimated using a differential approach. Our findings indicate that both domestic and foreign tomato producers with both very small and small farms are expected to see significant losses in profit after the adoption of FSMA. The practical implications of these findings are that the Food and Drug Administration (FDA) should be aware of, be concerned about, and take into consideration the adverse consequences of their regulatory decisions on food prices, food-industry costs, the structure of the food industry, and product diversity. In essence, the FDA needs to strike a balance between food safety (the primary objective of FSMA) and market performance.

This paper explores the nature and causes of the cartel compliance crisis that befell the National Industrial Recovery Act (NIRA) one year after its passage in 1933. We employ a simple game-theoretic model of the NIRA's cartel enforcement mechanism to show that the compliance crisis can largely be explained by changes in expectations, rather than a change in enforcement policy. Specifically, firms initially overestimated the probability that defection would be met with sanction by the cartel's enabling body, the National Recovery Administration – including a consumer boycott resulting from loss of the patriotic Blue Eagle emblem – and complied with the industry cartel rules. As these expectations were correctly adjusted downward, cartel compliance was lost. We support this hypothesis empirically with industry-level panel data showing how output and wage rates varied according to consumer confidence in the Blue Eagle. The analysis provides insight about cartel performance more generally.