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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, vol. 62(1), pages 101-124, March.
  • Handle: RePEc:ntj:journl:v:62:y:2009:i:1:p:101-24
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    References listed on IDEAS

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    1. Alm, James & Sanchez, Isabel & de Juan, Ana, 1995. "Economic and Noneconomic Factors in Tax Compliance," Kyklos, Wiley Blackwell, vol. 48(1), pages 3-18.
    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 107-114, March.
    3. 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.
    4. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
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    Cited by:

    1. 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.
    2. Franklin G. Mixon & Richard J. Cebula (ed.), 2014. "New Developments in Economic Education," Books, Edward Elgar Publishing, number 15538.
    3. repec:pje:journl:article27sumv is not listed on IDEAS
    4. James Alm, 2017. "Is Economics Useful for Public Policy?," Working Papers 1702, Tulane University, Department of Economics.
    5. Hungerman, Daniel M., 2014. "Public goods, hidden income, and tax evasion: Some nonstandard results from the warm-glow model," Journal of Development Economics, Elsevier, vol. 109(C), pages 188-202.
    6. Alm, James & Shimshack, Jay, 2014. "Environmental Enforcement and Compliance: Lessons from Pollution, Safety, and Tax Settings," Foundations and Trends(R) in Microeconomics, now publishers, vol. 10(4), pages 209-274, December.
    7. James Alm, 2014. "Expanding the theory of tax compliance from individual to group motivations," Chapters,in: A Handbook of Alternative Theories of Public Economics, chapter 12, pages 260-277 Edward Elgar Publishing.
    8. Alm, James, 2018. "Is Economics Useful for Public Policy?," Working Paper Series 6824, Victoria University of Wellington, Chair in Public Finance.

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