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The Return To Tax Simplification: an Econometric Analysis

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  • Joel Slemrod

    (University of Michigan)

Abstract

This article provides estimates of the probable saving in the resource cost of complying with the tax law that would result from simplifying the individual Abstract income tax law. These estimates are based on an econometric analysis of the tax-filing behavior in 1982 of a sample of Minnesota taxpayers. A simple model of tax-compliance behavior based on utility maximization is first presented in order to suggest the important determinants of compliance behavior. The empirical model treats the discrete choices of whether to itemize deductions and whether to hire professional tax advice, and the choice of how much time and money to spend, conditional on the discrete choices made. Simulations based on the econometric results suggest that significant resource saving could be expected from eliminating the system of itemized deductions, although no significant saving from changing to a single-rate tax structure can be confidently predicted. Results suggest that the Tax Reform Act of 1986 will, in the long run, decrease the use ofprofessional tax assistance, but its net effect on the use of taxpayer's own time is unclear.

Suggested Citation

  • Joel Slemrod, 1989. "The Return To Tax Simplification: an Econometric Analysis," Public Finance Review, , vol. 17(1), pages 3-27, January.
    • Handle: RePEc:sae:pubfin:v:17:y:1989:i:1:p:3-27
    DOI: 10.1177/109114218901700101
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    References listed on IDEAS

    as
    1. Stiglitz, Joseph E., 1982. "Utilitarianism and horizontal equity : The case for random taxation," Journal of Public Economics, Elsevier, vol. 18(1), pages 1-33, June.
    2. Joel Slemrod, 1989. "The Return To Tax Simplification: an Econometric Analysis," Public Finance Review, , vol. 17(1), pages 3-27, January.
    3. Weiss, Laurence, 1976. "The Desirability of Cheating Incentives and Randomness in the Optimal Income Tax," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1343-1352, December.
    4. Lee, Lung-Fei & Trost, Robert P., 1978. "Estimation of some limited dependent variable models with application to housing demand," Journal of Econometrics, Elsevier, vol. 8(3), pages 357-382, December.
    5. Cross, Rodney & Shaw, G K, 1982. "On the Economics of Tax Aversion," Public Finance = Finances publiques, , vol. 37(1), pages 36-47.
    6. Joel Slemrod & Nikki Sorum, 1984. "The Compliance Cost of the U.S. Individual Income Tax System," NBER Working Papers 1401, National Bureau of Economic Research, Inc.
    7. Lee, Lung-fei & Maddala, G S & Trost, R P, 1980. "Asymptotic Covariance Matrices of Two-Stage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models with Selectivity," Econometrica, Econometric Society, vol. 48(2), pages 491-503, March.
    8. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
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