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How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax

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  • Louis Kaplow

Abstract

Much criticism of the income tax involves administration: the enormous complexity of the system is responsible for large compliance costs, public and private, and the tax gap is large despite substantial resources devoted to enforcement. The desire for simplification and improved compliance motivates various incremental reforms as well as proposals for fundamental restructuring of the tax system. But evaluation of such changes is difficult because the underlying problems have not been analyzed in terms of the equity and efficiency concerns that animate more familiar assessments of income tax policy. This article provides a framework for a unified analysis, in which the same factors that are used to justify the choice of the tax base and the rate structure are employed to resolve problems involving complexity, compliance costs, and enforcement difficulties.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5391.

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Date of creation: Dec 1995
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Publication status: published as National Tax Journal, vol. 49, pp. 135-150, (1996).
Handle: RePEc:nbr:nberwo:5391

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  1. Louis Kaplow, 1994. "A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism," NBER Working Papers 4961, National Bureau of Economic Research, Inc.
  2. Joel Slemrod & Shlomo Yitzhaki, 1985. "The Optimal Size of a Tax Collection Agency," NBER Working Papers 1759, National Bureau of Economic Research, Inc.
  3. Kaplow, Louis, 1995. "A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism," National Tax Journal, National Tax Association, vol. 48(4), pages 497-514, December.
  4. Joel Slemrod & Shlomo Yitzhaki, 1994. "Analyzing the standard deduction as a presumptive tax," International Tax and Public Finance, Springer, Springer, vol. 1(1), pages 25-34, February.
  5. Joel Slemrod & Nikki Sorum, 1985. "The Compliance Cost of the U.S. Individual Income Tax System," NBER Working Papers 1401, National Bureau of Economic Research, Inc.
  6. Mayshar, Joram, 1991. " Taxation with Costly Administration," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 93(1), pages 75-88.
  7. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association, vol. 42(2), pages 139-54, June.
  8. Alm, James & Sanchez, Isabel & de Juan, Ana, 1995. "Economic and Noneconomic Factors in Tax Compliance," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 48(1), pages 3-18.
  9. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 43(2), pages 221-236, November.
  10. Mirrlees, J A, 1990. "Taxing Uncertain Incomes," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 34-45, January.
  11. Joel Slemrod & Shlomo Yitzhaki, 1995. "The Costs of Taxation and the Marginal Cost of Funds," IMF Working Papers 95/83, International Monetary Fund.
  12. Louis Kaplow, 1985. "Horizontal Equity: Measures in Search of a Principle," NBER Working Papers 1679, National Bureau of Economic Research, Inc.
  13. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, American Economic Association, vol. 69(3), pages 475-80, June.
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Cited by:
  1. Susan M. Dynarski & Judith E. Scott-Clayton, 2006. "The Cost of Complexity in Federal Student Aid: Lessons from Optimal Tax Theory and Behavioral Economics," NBER Working Papers 12227, National Bureau of Economic Research, Inc.
  2. Eichfelder, Sebastian & Schorn, Michael, 2009. "Tax compliance costs: a business administration perspective," Discussion Papers 2009/3, Free University Berlin, School of Business & Economics.
  3. Alessandro Balestrino & Umberto Galmarini, 2005. "On the Redistributive Properties of Presumptive Taxation," CESifo Working Paper Series 1381, CESifo Group Munich.
  4. Manfred Rose & Michael Robert Rimmler & Marko Thomas Scholz & Daniel Zöller, 2007. "Kosten der Erhebung von Unternehmenssteuern in Deutschland," Working Papers 0459, University of Heidelberg, Department of Economics, revised Nov 2007.
  5. Dynarski, Susan & Scott-Clayton, Judith, 2008. "Complexity and Targeting in Federal Student Aid: A Quantitative Analysis," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp08-005, Harvard University, John F. Kennedy School of Government.
  6. Louis Kaplow, 2000. "Horizontal Equity: New Measures, Unclear Principles," NBER Working Papers 7649, National Bureau of Economic Research, Inc.
  7. Benno Torgler, 2003. "Tax Morale, Rule-Governed Behaviour and Trust," Constitutional Political Economy, Springer, Springer, vol. 14(2), pages 119-140, June.
  8. Cuccia, Andrew D. & Carnes, Gregory A., 2001. "A closer look at the relation between tax complexity and tax equity perceptions," Journal of Economic Psychology, Elsevier, Elsevier, vol. 22(2), pages 113-140, April.
  9. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers 7473, National Bureau of Economic Research, Inc.
  10. Edgar L. Feige, 2001. "Taxation for the 21st Century: The Automated Payment Transaction (APT) Tax," Public Economics, EconWPA 0106001, EconWPA.
  11. repec:ind:nipfwp:13 is not listed on IDEAS
  12. Meng-Yu Liang & C.C. Yang, 2007. "On the Budget-Constrained IRS: Equilibrium and Equilibrium and efficiency," IEAS Working Paper : academic research 07-A002, Institute of Economics, Academia Sinica, Taipei, Taiwan.
  13. Franz W. Wagner, 2006. "Was bedeutet Steuervereinfachung wirklich?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 7(1), pages 19-33, 02.
  14. Evy Crals & Lode Vereeck, 2005. "Taxes, Tradable Rights and Transaction Costs," European Journal of Law and Economics, Springer, Springer, vol. 20(2), pages 199-223, September.
  15. James, Simon & Edwards, Alison, 2008. "Developing Tax Policy in a Complex and Changing World," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(1), pages 35-53, March.
  16. Franz W. Wagner & Susanne Zeller, 2011. "Deutschland als Weltmeister der Steuerliteratur? Fallstudie einer Legende," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 12(3), pages 303-316, 08.
  17. Das-Gupta, Arindam, 2004. "Economic theory of tax compliance with special reference to tax compliance costs," Working Papers, National Institute of Public Finance and Policy 04/13, National Institute of Public Finance and Policy.

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