Tax Evasion, Information Reporting, and the Regressive Bias Hypothesis
AbstractA robust prediction from the tax evasion literature is that optimal auditing induces a regressive bias in effective tax rates compared to statutory rates. If correct, this will have important distributional consequences. Nevertheless, the regressive bias hypothesis has never been tested empirically. Using a unique data set, we provide evidence in favor of the regressive bias prediction but only when controlling for the tax agency's use of third-party information in predicting true incomes. In aggregate data, the regressive bias vanishes because of the systematic use of third-party information. These results are obtained both in simple reduced-form regressions and in a data-calibrated state-of-the-art model.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 2010-13.
Length: 29 pages
Date of creation: Oct 2010
Date of revision:
Contact details of provider:
Postal: Øster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark
Phone: (+45) 3532 4411
Fax: +45 35 32 30 00
Web page: http://www.econ.ku.dk/epru/
More information through EDIRC
Other versions of this item:
- Pinje, Jori Veng & Boserup, Simon Halphen, 2011. "Tax evasion, information reporting, and the regressive bias hypothesis," MPRA Paper 28406, University Library of Munich, Germany.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-03-05 (Accounting & Auditing)
- NEP-ALL-2011-03-05 (All new papers)
- NEP-PUB-2011-03-05 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Nielsen, Soren Bo & Sorensen, Peter Birch, 1997. "On the optimality of the Nordic system of dual income taxation," Journal of Public Economics, Elsevier, vol. 63(3), pages 311-329, February.
- Rogerson, Richard & Wallenius, Johanna, 2009.
"Micro and macro elasticities in a life cycle model with taxes,"
Journal of Economic Theory,
Elsevier, vol. 144(6), pages 2277-2292, November.
- Richard Rogerson & Johanna Wallenius, 2007. "Micro and Macro Elasticities in a Life Cycle Model With Taxes," NBER Working Papers 13017, National Bureau of Economic Research, Inc.
- Alm, James & McClelland, Gary H. & Schulze, William D., 1992. "Why do people pay taxes?," Journal of Public Economics, Elsevier, vol. 48(1), pages 21-38, June.
- Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
- Andreoni, J. & Erard, B. & Feinstein, J., 1996.
9610r, Wisconsin Madison - Social Systems.
- Lars P. Feld & Bruno S. Frey, 2002.
"Trust breeds trust: How taxpayers are treated,"
Economics of Governance,
Springer, vol. 3(2), pages 87-99, 07.
- Lars P. Feld & Bruno S. Frey, . "Trust Breeds Trust: How Taxpayers are Treated," IEW - Working Papers 098, Institute for Empirical Research in Economics - University of Zurich.
- Lars P. Feld & Bruno S. Frey, 2000. "Trust Breeds Trust: How Taxpayers are Treated," CESifo Working Paper Series 322, CESifo Group Munich.
- Cremer, H. & Marchand, M. & Pestieau, P., 1988.
"Evading, Auditing And Taxing: The Equity-Compliance Tradeoff,"
401, Cornell - Department of Economics.
- Cremer, H. & Marchand, M. & Pestieau, P., 1990. "Evading, auditing and taxing : The equity-compliance tradeoff," Journal of Public Economics, Elsevier, vol. 43(1), pages 67-92, October.
- Cremer, H. & Marchand, M. & Pestieau, P., 1988. "Evading, auditing and taxing: the equity-compliance tradeoff," CORE Discussion Papers 1988027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
- Nahum D. Melumad & Dilip Mookherjee, 1989. "Delegation as Commitment: The Case of Income Tax Audits," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 139-163, Summer.
- Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2011.
"Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 126(2), pages 749-804.
- Raj Chetty & John N. Friedman & Tore Olsen & Luigi Pistaferri, 2009. "Adjustment Costs, Firm Responses, and Micro vs. Macro Labor Supply Elasticities: Evidence from Danish Tax Records," NBER Working Papers 15617, National Bureau of Economic Research, Inc.
- Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
- Scotchmer, Suzanne, 1992. "The Regressive Bias in Tax Enforcement," Public Finance = Finances publiques, , vol. 47(Supplemen), pages 366-71.
- Scotchmer, Suzanne, 1987. "Audit Classes and Tax Enforcement Policy," American Economic Review, American Economic Association, vol. 77(2), pages 229-33, May.
- Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
- A. B. Atkinson & J. E. Søgaard, 2013. "The long-run history of income inequality in Denmark: Top incomes from 1870 to 2010," EPRU Working Paper Series 2013-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Hoffmann).
If references are entirely missing, you can add them using this form.