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Tax Evasion at the Top of the Income Distribution: Theory and Evidence

Author

Listed:
  • John Guyton
  • Patrick Langetieg
  • Daniel Reck
  • Max Risch
  • Gabriel Zucman

Abstract

We study tax evasion at the top of the U.S. income distribution using micro-data from random and operational audits and focused enforcement initiatives. Leveraging enforcement that revealed noncompliance ex post, we find that under the audit methods used during 2006–2013, individual random audit data failed to capture sophisticated evasion via offshore accounts and pass-through businesses. Consequently, estimates based solely on individual random audit data from this period under-state evasion by the highest-income Americans. We propose a theoretical explanation and construct new distributional estimates of noncompliance in the United States. Accounting for sophisticated evasion increases unreported income of the top 1% of the income distribution in 2006–2013 by 50% and increases the top 1% fiscal income share by about 1 percentage point.

Suggested Citation

  • John Guyton & Patrick Langetieg & Daniel Reck & Max Risch & Gabriel Zucman, 2021. "Tax Evasion at the Top of the Income Distribution: Theory and Evidence," NBER Working Papers 28542, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28542
    Note: PE
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    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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