No government can announce a tax system and then rely on taxpayers' sense of duty to remit what is owed. Some dutiful people will undoubtedly pay what they owe, but many others will not. Over time ...the ranks of the dutiful will shrink, as they see how they are being taken advantage of by the others. Thus, paying taxes must be made a legal responsibility of citizens, with penalties attendant on noncompliance. But even in the face of those penalties, substantial tax evasion exists. Tax evasion is widespread, always has been, and probably always will be. This essay reviews what is known about the magnitude, nature, and determinants of tax evasion, with an emphasis on the U.S. income tax. It then places this information into a conceptual context, examining various models and theories, and considers policy implications.
Tax Compliance and Enforcement Slemrod, Joel
Journal of economic literature,
12/2019, Volume:
57, Issue:
4
Journal Article
Peer reviewed
This paper reviews recent economic research in tax compliance and enforcement. After briefly laying out the economics of tax evasion, it focuses on recent empirical contributions. It first discusses ...what methodologies and data have facilitated these contributions, and then presents critical summaries of what has been learned. It discusses a promising new development—the analysis of randomized controlled trials mostly delivered via letters from the tax authority—and then reviews recent research using various methods about the impact of the principal enforcement tax policy instruments: audits, information reporting, and remittance regimes. I also explore several understudied issues worthy of more research attention. The paper closes by outlining a normative framework based on the behavioral response elasticities now being credibly estimated that allow one to assess whether a given enforcement intervention is worth doing.
Tax Systems Slemrod, Joel; Gillitzer, Christian
12/2013
eBook
Despite its theoretical elegance, the standard optimal tax model has significant limitations. In this book, Joel Slemrod and Christian Gillitzer argue that tax analysis must move beyond the emphasis ...on optimal tax rates and bases to consider such aspects of taxation as administration, compliance, and remittance. Slemrod and Gillitzer explore what they term a tax-systems approach, which takes tax evasion seriously; revisits the issue of remittance, or who writes the check to cover tax liability (employer or employee, retailer or consumer); incorporates administrative and compliance costs; recognizes a range of behavioral responses to tax rates; considers nonstandard instruments, including tax base breadth and enforcement effort; and acknowledges that tighter enforcement is sometimes a more socially desirable way to raise revenue than an increase in statutory tax rates. Policy makers, Slemrod and Gillitzer argue, would be well advised to recognize the interrelationship of tax rates, bases, enforcement, and administration, and acknowledge that tax policy is really tax-systems policy.
Empirical research about tax evasion and the informal economy has exploded in the past few decades, seeking to shed light on the magnitude and (especially policy) determinants of these phenomena. ...Quantitative information informs the analysis of policy choices, enables the testing of hypotheses about determinants of this phenomenon, and can help with the accurate construction of national income accounts. Even as empirical analysis has burgeoned, some have expressed doubts about the quality and usefulness of some prominent measures. The fact that high-quality data is elusive is neither surprising nor a coincidence. The defining characteristic of tax evasion and informal economic activity—that they are generally illegal—often renders unreliable standard data collection methods such as surveys. Unlike invisible phenomena in the natural sciences, these invisible social science phenomena are hard to measure because of choices made by individuals. Analysis of tax evasion and the informal economy must proceed even in the absence of the direct observability of key variables, and theory should guide the construction and interpretation of evidence of the “invisible.” In this paper, we address what can be learned using micro or macro data regarding tax evasion and the informal economy under given conditions and assumptions, and critically review some of the most common empirical methods in light of our conclusions. We conclude with an entreaty for researchers in this field to enlist in the “credibility revolution” (Angrist and Pischke in J. Econ. Perspect. 4(2):3–30,
2010
) in applied econometrics.
In an effort to bolster economic performance in light of a looming downturn in economic activity, on February 13, 2008, President George W Bush signed the Economic Stimulus Act of 2008. More than ...two-thirds of the $152 billion bill consisted of economic stimulus payments to be sent beginning in May to approximately 130 million households. The effect of these stimulus payments depends on how much was spent. This paper reports new survey evidence on the propensity of consumers to spend the 2008 rebate. It also relates the survey evidence to aggregate data and to evidence about spending from the 2001 tax rebate.
Notches – where marginal changes in behavior lead to discrete changes in a tax or subsidy – figure prominently in many policies. In this paper, we analyze notches in fuel economy policies, which aim ...to reduce negative externalities associated with fuel consumption. We provide evidence that automakers respond to notches in the Gas Guzzler Tax and mandatory fuel economy labels by precisely manipulating fuel economy ratings so as to just qualify for more favorable treatment. We then describe the welfare consequences of this behavior and derive a welfare summary statistic applicable to many contexts. In brief, notches are an inefficient substitute for smooth policies because they create marginal incentives that vary among decision makers and induce some individual actions that have negative net social benefits.
► A tax has notches if marginal changes in attributes can lead to discrete tax changes. ► Fuel economy taxes, which aim to reduce fuel-related externalities, have notches. ► Automakers strategically respond to these notches by modifying certain vehicles. ► This response improves fuel economy, but it is inefficient and may lower welfare. ► A similar inefficient response is induced by rounding rules for fuel economy labels.
Based on the experience of recent decades, the United States apparently musters the political will to change its tax system comprehensively about every 30 years, so it seems especially important to ...get it right when the chance arises. Based on the strong public statements of economists opposing and supporting the Tax Cuts and Jobs Act of 2017, a causal observer might wonder whether this law was tax reform or mere confusion. In this paper, I address that question and, more importantly, offer an assessment of the Tax Cuts and Jobs Act. The law is clearly not “tax reform” as economists usually use that term: that is, it does not seek to broaden the tax base and reduce marginal rates in a roughly revenue-neutral manner. However, the law is not just a muddle. It seeks to address some widely acknowledged issues with corporate taxation, and takes some steps toward broadening the tax base, in part by reducing the incentive to itemize deductions.
Taxing Our Wealth Scheuer, Florian; Slemrod, Joel
The Journal of economic perspectives,
01/2021, Volume:
35, Issue:
1
Journal Article
Peer reviewed
Open access
This paper evaluates proposals for an annual wealth tax. While a dozen OECD countries levied wealth taxes in the recent past, now only three retain them, with only Switzerland raising a comparable ...fraction of revenue as recent proposals for a US wealth tax. Studies of these taxes sometimes, but not always, find a substantial behavioral response, including of saving, portfolio change, avoidance, and evasion, and the impact depends crucially on design features, especially the broadness of the base and enforcement provisions. Because the US proposals are very different from any previous wealth tax, experience in other countries offers only broad lessons, but we can gain insights from closely related taxes, such as the property and the estate tax, and from optimal tax analysis of the role of wealth taxation.
I address some issues in measuring group equity and implicit discrimination and in assessing their role in the evaluation of tax systems, focusing on racial equity in the United States. I argue that ...group inequity should be judged relative to other accepted objectives of the tax system it may facilitate and stress the importance of having accurate measures of well-being. Finally, I present a decomposition of the difference in groups’ average tax rates into measures of the overall progressivity, group differences in average income, and a set of income-group-specific measures of horizontal group tax differences.
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