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An Econometric Analysis of Income Tax Evasion and its Detection


  • Jonathan S. Feinstein


This article presents an econometric analysis of income tax evasion and its detection based on individual-level data drawn from the Internal Revenue Service 1982 and 1985 Taxpayer Compliance Measurement Programs. I specify a model consisting of two equations: the first measures the extent of evasion; the second, the fraction of evasion detected. The empirical analysis explores the effects of income, the marginal tax rate, and various socioeconomic characteristics on filer evasion behavior, and it assesses the variability in detection rates among IRS examiners. Finally, I use the empirical estimates to construct new estimates of the income tax gap; the new estimates are very close to the previous IRS estimates.

Suggested Citation

  • Jonathan S. Feinstein, 1991. "An Econometric Analysis of Income Tax Evasion and its Detection," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 14-35, Spring.
  • Handle: RePEc:rje:randje:v:22:y:1991:i:spring:p:14-35

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    References listed on IDEAS

    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-894, July.
    3. Aumann, Robert J, 1987. "Correlated Equilibrium as an Expression of Bayesian Rationality," Econometrica, Econometric Society, vol. 55(1), pages 1-18, January.
    4. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
    5. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
    6. Lawrence Ausubel & Raymond Deneckere, 1985. "One is Almost Enough for Monopoly," Discussion Papers 669, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
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