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On the Treatment of Income Tax Rates in Empirical Analysis of Tax Evasion

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  • Crane, Steven E
  • Nourzad, Farrokh
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    Abstract

    In this paper, it is argued that average tax rates exert an influen ce on income tax evasion separate from, and opposite to, that of marginal tax rates. Failure to account for this effect in empirical e vasion models biases the parameter estimate of the marginal rate in a predictable manner. Evidence from an aggregate empirical model of ev asion in the United States indicates that the marginal tax rate is po sitively related to evasion, whereas the average tax rate is negative ly related. Further, exclusion of the average rate from the model doe s in fact bias the parameter estimate of the marginal tax rate. Copyright 1987 by WWZ and Helbing & Lichtenhahn Verlag AG

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Kyklos.

    Volume (Year): 40 (1987)
    Issue (Month): 3 ()
    Pages: 338-48

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    Handle: RePEc:bla:kyklos:v:40:y:1987:i:3:p:338-48

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    Cited by:
    1. David E. A. Giles & Gugsa T. Werkneh & Betty J. Johnson, 1999. "Asymmetric Responses of the Underground Economy to Tax Changes: Evidence From New Zealand Data," Econometrics Working Papers 9911, Department of Economics, University of Victoria.
    2. Benno Torgler & Jan Werner, 2005. "Tax Morale and Fiscal Autonomy: Evidence from Germany," Working Papers 03-2005, Institute of Local Public Finance.
    3. David E. A. Giles & Betty J. Johnson, 1999. "Taxes, Risk-Aversion, and the Size of the Underground Economy: A Nonparametric Analysis With New Zealand Data," Econometrics Working Papers 9910, Department of Economics, University of Victoria.
    4. Benno Torgler & Friedrich Schneider & Christoph Schaltegger, 2010. "Local autonomy, tax morale, and the shadow economy," Public Choice, Springer, vol. 144(1), pages 293-321, July.
    5. Hannelore Weck-Hannemann & Werner W. Pommerehne, 1989. "Einkommensteuerhinterziehung in der Schweiz: Eine empirische Analyse," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 125(IV), pages 515-556, December.
    6. Trandel, Greg & Snow, Arthur, 1999. "Progressive income taxation and the underground economy," Economics Letters, Elsevier, vol. 62(2), pages 217-222, February.
    7. Torgler, Benno & Schneider, Friedrich & Schaltegger, Christoph A., 2007. "With or Against the People? The Impact of a Bottom-Up Approach on Tax Morale and the Shadow Economy," Berkeley Olin Program in Law & Economics, Working Paper Series qt6331x6vz, Berkeley Olin Program in Law & Economics.
    8. Lee, Kangoh, 2001. "Tax evasion and self-insurance," Journal of Public Economics, Elsevier, vol. 81(1), pages 73-81, July.
    9. Michele Bernasconi, Luca Corazzini, Raffaello Seri, 2012. "Tax Evasion: Does the Tax Burden Matter?," ISLA Working Papers 43, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.
    10. Bernasconi, Michele & Corazzini, Luca & Seri, Raffaello, 2014. "Reference dependent preferences, hedonic adaptation and tax evasion: Does the tax burden matter?," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 103-118.

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