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Spatiality and Persistence in U.S. Individual Income Tax Compliance

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  • Alm, James
  • Yunus, Mohammad

Abstract

This paper examines the twin issues of spatiality and persistence in the individual income tax evasion decision. The issue of persistence arises through accumulated learning over time; spatiality arises for several reasons, including the exchange of information between taxpayers, the social norm of tax compliance, and the difficulties faced by individuals with dynamic stochastic decision problems like tax evasion. The paper uses state–level, time–series, cross–section data for the years 1979 to 1997 to estimate the factors that affect per return evasion of the individual income tax. The estimation methods incorporate both spatial dependence and dynamic considerations; they also consider the potential endogeneity of the audit rate. The empirical results provide strong and robust support for both spatiality and persistence in tax evasion. The results also show a large deterrent effect from higher audit rates.

Suggested Citation

  • Alm, James & Yunus, Mohammad, 2009. "Spatiality and Persistence in U.S. Individual Income Tax Compliance," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(1), pages 101-124, March.
  • Handle: RePEc:ntj:journl:v:62:y:2009:i:1:p:101-24
    DOI: 10.17310/ntj.2009.1.05
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    References listed on IDEAS

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    1. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance With Experimental Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(1), pages 107-114, March.
    2. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, vol. 45(1), pages 107-14, March.
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    4. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
    5. Alm, James & Sanchez, Isabel & de Juan, Ana, 1995. "Economic and Noneconomic Factors in Tax Compliance," Kyklos, Wiley Blackwell, vol. 48(1), pages 3-18.
    6. Arthur Getis, 1995. "Spatial Filtering in a Regression Framework: Examples Using Data on Urban Crime, Regional Inequality, and Government Expenditures," Advances in Spatial Science, in: Luc Anselin & Raymond J. G. M. Florax (ed.), New Directions in Spatial Econometrics, chapter 8, pages 172-185, Springer.
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