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The Effects of Introducing Withholding on Tax Compliance: Evidence from Pennsylvania’s Local Earned Income Tax

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  • Sutirtha Bagchi

Abstract

This paper examines Act 32, which mandated the introduction of withholding for the local income tax for all employees and the consolidation of a fragmented collection system to one collector per county, effective January 1, 2012, for Pennsylvania local governments. Using a difference-in-differences research design, I find that the act resulted in increased collections of the local income tax by about 9 percent. Results examining the heterogeneous impact of Act 32 show that the effects were larger where fewer residents had been subject to withholding prior to the reform and in counties that experienced a greater consolidation of tax collection.

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  • Sutirtha Bagchi, 2025. "The Effects of Introducing Withholding on Tax Compliance: Evidence from Pennsylvania’s Local Earned Income Tax," National Tax Journal, University of Chicago Press, vol. 78(2), pages 327-367.
    • Handle: RePEc:ucp:nattax:doi:10.1086/733662
    DOI: 10.1086/733662
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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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