Intergovernmental Cooperation and Tax Enforcement

Improving the efficiency of tax collection is essential for both developmental and fairness purposes. I analyze the Audit Exchange Information Agreements, which are agreements established between the states and the U.S. federal government to share information on income tax audit plans and techniques. These agreements were signed between the 1950s and the 1970s. Using a doubly robust difference-in-differences approach, I demonstrate that the program increased state income tax revenues by approximately 20 percent. Furthermore, I find no evidence that the policy caused outmigration, suggesting that either the salience of the policy or the fixed costs of mobility deterred an extensive margin response.