Pinje, Jori Veng and Boserup, Simon Halphen (2011): Tax evasion, information reporting, and the regressive bias prediction.
This is the latest version of this item.
Download (1MB) | Preview
A robust, but untested, prediction from the tax evasion literature is that optimal auditing induces a regressive bias in eective average tax rates compared to statutory rates, reducing the degree of redistribution in the tax system. Using Danish administrative data, we show that a calibrated structural model of rational tax evasion and tax enforcement can convincingly replicate the moments and correlations of tax evasion and probabilities of audit once we account for the presence of information reporting in the tax compliance game. We nd that both reduced-form evidence and simulations are in accordance with the prediction of regressive bias when conditioning on information reporting. However, information reporting counteracts the regressive bias generated by optimal evasion and auditing behavior and, as a consequence, the bias vanishes when considering the degree of redistribution in the overall economy.
|Item Type:||MPRA Paper|
|Original Title:||Tax evasion, information reporting, and the regressive bias prediction|
|English Title:||Tax Evasion, Information Reporting, and the Regressive Bias Prediction|
|Keywords:||tax evasion; tax enforcement; information reporting; auditing|
|Subjects:||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance
|Depositing User:||Jori Pinje|
|Date Deposited:||14. Jan 2012 02:48|
|Last Modified:||14. Feb 2013 13:48|
Allingham, M. G., Sandmo, A., 1972. Income tax evasion: A theoretical analysis. Journal of Public Economics 1, 323-338.
Alm, J., McClelland, G. H., Schulze, W. D., 1992. Why do people pay taxes? Journal of Public Economics 48 (1), 21-38.
Andreoni, J., Erard, B., Feinstein, J. S., 1998. Tax compliance. Journal of Economic Literature 36 (2), 818-60.
Clotfelter, C., 1983. Tax evasion and tax rates: An analysis of individual returns. The Review of Economics and Statistics 65 (3), 363-373.
Cremer, H., Gahvari, F., 1994. Tax Evasion, Concealment and the Optimal Linear Income Tax. Scandinavian Journal of Economics 96 (gr), 219-239.
Cremer, H., Marchand, M., Pestieau, P., 1990. Evading, auditing and taxing: The equit-compliance tradeoff. Journal of Public Economics 43 (1), 67-92.
DRS, 2011. Dansk Økonomi, Forår 2011. www.dors.dk.
Erard, B., Feinstein, J. S., 1994. Honesty and evasion in the tax compliance game. RAND Journal of Economics 25 (1), 1-19.
Feinstein, J., 1991. An econometric analysis of income tax evasion and its detection. The RAND Journal of Economics 22 (1), 14-35.
Feld, L. P., Frey, B. S., 2002. Trust Breeds Trust: How Taxpayers Are Treated. Economics of Governance 3 (2), 87-99.
Grasmick, H. G., Bursick, Jr., R. J., 1990. Conscience, signicant others, and rational choice: Extending the deterrence model. Law and Society Review 24 (3), 837-861.
Internal Revenue Service, 2012. Fiscal year 2011 enforcement and service results. http: //www.irs.gov/newsroom/article/0,,id=251923,00.html.
Kleven, H. J., Knudsen, M. B., Kreiner, C. T., Pedersen, S., Saez, E., 2011. Unwilling or unable to cheat? Evidence from a randomized tax audit experiment in Denmark. Econometrica 79 (3), 651-692.
Nielsen, S. B., Srensen, P. B., 1997. On the optimality of the nordic system of dual income taxation. Journal of Public Economics 63, 311-329.
Phillips, M. D., 2010. Taxpayer Response to Targeted Audits. mimeo, University of Chicago.
Pomeranz, D., 2010. No taxation without information: Deterrence and self-enforcement in the value added tax.
Reinganum, J. F., Wilde, L. L., 1986. Equilibrium verication and reporting policies in a model of tax compliance. International Economic Review 27 (3), 739-60.
Sanchez, I., Sobel, J., 1993. Hierarchical design and enforcement of income tax policies. Journal of Public Economics 50 (3), 345-69.
Scotchmer, S., 1987. Audit classes and tax enforcement policy. American Economic Review 77 (2), 229-33.
Scotchmer, S., 1992. The regressive bias in tax enforcement. Public Finance 47, 367-371.
Shampine, L. F., 2009. Vectorized solution of ODEs in Matlab with control of residual and error. http://faculty.smu.edu/shampine/.
Slemrod, J., 2003. Public Finance and Public Policy in the New Century. Cambridge, MA: MIT Press, Ch. Trust in Public Finance, pp. 49-88.
Slemrod, J., 2007. Cheating ourselves: The economics of tax evasion. Journal of Economic Perspectives 21 (1), 25-48.
Spicer, M. W., Becker, L. A., 1980. Fiscal inequity and tax evasion: An experimental approach.National Tax Journal 33 (2), 171-175.
Torgler, B., 2003. Tax morale, rule-governed behavior, and trust. Constitutional Political Economy 14 (2), 119-140.
Available Versions of this Item
Tax evasion, information reporting, and the regressive bias hypothesis. (deposited 28. Jan 2011 08:46)
- Tax evasion, information reporting, and the regressive bias prediction. (deposited 14. Jan 2012 02:48) [Currently Displayed]