An Empirical Note on Determinants of Income Tax Evasion, 1973-1997

Cebula, Richard and McGrath, Richard (2000): An Empirical Note on Determinants of Income Tax Evasion, 1973-1997. Published in: The International Business & Economics Research Conference Program and Proceedings , Vol. 11, No. 1 (15 October 2001): pp. 1-5.

Abstract

This note empirically investigates the impact of various factors on income tax evasion in the U.S. over the 1973-1997 period. The estimate indicates that income tax evasion is an increasing function of the average effective federal personal income tax rate and the public's dissatisfaction with government and a decreasing function both of penalties imposed by the IRS on unpaid taxes and IRS audit rates. However, the average effective social security tax rate appears not to significantly affect tax evasion. A trend variable that may to some extent crudely reflect the impact of improved IRS income detection technologies over time exhibits a negative and significant coefficient.

• Item Type: MPRA Paper
• Language: English
• Keywords: underground economy; income tax evasion; benefit-cost model
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H31 - Household

References

Atkins, F.J. "Macroeconomic Time Series and the Monetary Aggregates Approach to Estimating the Underground Economy," Applied Economics Letters, 6, 1999, pp. 609-11.

Baldry, J.C. "Income Tax Evasion and the Tax Schedule: Some Experimental Results," Public Finance/Finances Publiques, 42, 1987, pp. 357-83.

Cebula, R.J. "An Empirical Analysis of the Impact of Government Tax and Auditing Policies on the Size of the Underground Economy: The Case of the United States," The American Journal of Economics and Sociology, 56, 1997, pp. 173-86.

Feige, E.L. "The Underground Economy and the Currency Enigma," Public Finance/Finances Publiques, 49, 1994, pp. 119-136.

Panteghini, P.M. "Tax Evasion and Entrepreneurial Flexibility," Public Finance Review, 28, 2000, pp. 199-209.

Pestieau, P., Possen, U., and Slutsky, S. "Optimal Differential Taxes and Penalties," Public Finance/Finances Publiques, 49, 1994, pp. 15-27.

White, H. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, 48, 1980, pp. 817-38.