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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

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

Suggested Citation

  • Crane, Steven E & Nourzad, Farrokh, 1987. "On the Treatment of Income Tax Rates in Empirical Analysis of Tax Evasion," Kyklos, Wiley Blackwell, vol. 40(3), pages 338-348.
    • Handle: RePEc:bla:kyklos:v:40:y:1987:i:3:p:338-48
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    Cited by:

    1. 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.
    2. Richard J. Cebula, 2014. "The underground economy in the U.S.A.: preliminary new evidence on the impact of income tax rates (and other factors) on aggregate tax evasion 1975-2008," PSL Quarterly Review, Economia civile, vol. 67(271), pages 451-481.
    3. L. S. Di Mauro & A. Pluchino & A. E. Biondo, 2018. "A Game of Tax Evasion: evidences from an agent-based model," Papers 1809.08146, arXiv.org.
    4. Pontus Braunerhjelm & Johan E. Eklund, 2014. "Taxes, tax administrative burdens and new firm formation," Kyklos, Wiley Blackwell, vol. 67(1), pages 1-11, February.
    5. Benno Torgler & Jan Werner, 2005. "Fiscal Autonomy and Tax Morale: Evidence from Germany," CREMA Working Paper Series 2005-07, Center for Research in Economics, Management and the Arts (CREMA).
    6. 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.
    7. Gideon Yaniv, 2013. "Tax Evasion, Conspicuous Consumption, and the Income Tax Rate," Public Finance Review, , vol. 41(3), pages 302-316, May.
    8. A. E. Biondo & G. Burgio & A. Pluchino & D. Puglisi, 2022. "Taxation and evasion: a dynamic model," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 797-826, July.
    9. Lee, Kangoh, 2001. "Tax evasion and self-insurance," Journal of Public Economics, Elsevier, vol. 81(1), pages 73-81, July.
    10. 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.
    11. 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.
    12. Benno Torgler & Jan Werner, 2005. "Tax Morale and Fiscal Autonomy: Evidence from Germany," Working Papers 03-2005, Institute of Local Public Finance.
    13. 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.
    14. Pommerehne, Werner W. & Frey, Bruno S., 1992. "The effects of tax administration on tax morale," Discussion Papers, Series II 191, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    15. David E.A. Giles & Gugsa T. Werkneh & Betty J. Johnson, 2001. "Asymmetric Responses of the Underground Economy to Tax Changes: Evidence From New Zealand Data," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 148-159, June.
    16. Benno Torgler & Christoph A. Schaltegger, 2005. "Tax Amnesties and Political Participation," Public Finance Review, , vol. 33(3), pages 403-431, May.
    17. Benno Torgler, 2003. "Tax Morale and Institutions," CREMA Working Paper Series 2003-09, Center for Research in Economics, Management and the Arts (CREMA).
    18. Kurauone, Ophias & Kong, Yusheng & Sun, Huaping & Muzamhindo, Simbarashe & Famba, Takuriramunashe & Taghizadeh-Hesary, Farhad, 2021. "The effects of International Financial Reporting Standards, auditing and legal enforcement on tax evasion: Evidence from 37 African countries," Global Finance Journal, Elsevier, vol. 49(C).
    19. 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.
    20. 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.
    21. Trandel, Greg & Snow, Arthur, 1999. "Progressive income taxation and the underground economy," Economics Letters, Elsevier, vol. 62(2), pages 217-222, February.
    22. 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.

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