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Understanding Spatial Variation in Tax Sheltering: The Role of Demographics, Ideology, and Taxes

Author

Listed:
  • William M. Gentry

    (Williams College, Williamstown, Massachusetts, William.M.Gentry@williams.edu)

  • Matthew E. Kahn

    (University of California at Los Angeles, mkahn@ioe.ucla.edu)

Abstract

Taxpayers shelter income from taxation both through illegal evasion and legal avoidance. This tax sheltering creates a difference between a household's actual income and what it reports to the tax authorities. While tax sheltering is a central concern for designing a tax system, the private nature of this behavior complicates evaluating the magnitude and determinants of such behavior. In this article, we combine zip-code level data on reported income from the Internal Revenue Service and the Census Bureau to examine three types of determinants of tax sheltering: (1) tax policy variables, including tax rates (2) political attitudes toward taxation; and (3) demographics. Our estimates suggest that higher tax rates increase the amount of tax sheltering. In terms of political support, our results suggest that places with voters who are either more conservative or less supportive of tax increases actually shelter less income.

Suggested Citation

  • William M. Gentry & Matthew E. Kahn, 2009. "Understanding Spatial Variation in Tax Sheltering: The Role of Demographics, Ideology, and Taxes," International Regional Science Review, , vol. 32(3), pages 400-423, July.
    • Handle: RePEc:sae:inrsre:v:32:y:2009:i:3:p:400-423
    DOI: 10.1177/0160017609336536
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    References listed on IDEAS

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    Cited by:

    1. Julio López-Laborda & Jaime Vallés-Giménez & Anabel Zárate-Marco, 2021. "Personal Income Tax Compliance at the Regional Level: The Role of Persistence, Neighborhood, and Decentralization," International Regional Science Review, , vol. 44(2), pages 289-317, March.
    2. James Alm & Jeremy Clark & Kara Leibel, 2011. "Socio-economic Diversity, Social Capital, and Tax Filing Compliance in the United States," Working Papers in Economics 11/35, University of Canterbury, Department of Economics and Finance.
    3. James Alm & Jeremy Clark & Kara Leibel, 2016. "Enforcement, Socioeconomic Diversity, and Tax Filing Compliance in the United States," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 725-747, January.

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