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Withholding matters: The impact of Act 32 on compliance with the earned income tax

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  • Bagchi, Sutirtha

Abstract

This paper examines Act 32 of the Pennsylvania state legislature which mandated the introduction of withholding for the local earned income tax (EIT) for all employees and the consolidation of a fragmented collection system to one collector per county effective January 1, 2012. The estimates I obtain suggest that the act resulted in increased compliance with the EIT of about 13 percent. A falsification exercise examining compliance with the property tax for the identical municipalities confirms that Act 32 did not impact the property tax. Both findings are robust to the inclusion of municipality fixed effects or municipality-specific time trends.

Suggested Citation

  • Bagchi, Sutirtha, 2022. "Withholding matters: The impact of Act 32 on compliance with the earned income tax," Economics Letters, Elsevier, vol. 219(C).
    • Handle: RePEc:eee:ecolet:v:219:y:2022:i:c:s0165176522002907
    DOI: 10.1016/j.econlet.2022.110796
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    References listed on IDEAS

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    1. Mazhar Waseem, 2022. "The Role of Withholding in the Self-Enforcement of a Value-Added Tax: Evidence from Pakistan," The Review of Economics and Statistics, MIT Press, vol. 104(2), pages 336-354, May.
    2. Bagchi, Sutirtha & Dušek, Libor, 2021. "The effects of introducing withholding and third-party reporting on tax collections: Evidence from the U.S. state personal income tax," Journal of Public Economics, Elsevier, vol. 204(C).
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    Citations

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    Cited by:

    1. Sutirtha Bagchi & Libor Dušek, 2023. "Tax Withholding and the Size of Government," Villanova School of Business Department of Economics and Statistics Working Paper Series 59, Villanova School of Business Department of Economics and Statistics.
    2. Sutirtha Bagchi, 2022. "The Effects of Introducing Withholding on Tax Compliance: Evidence from Pennsylvania’s Local Earned Income Tax," Villanova School of Business Department of Economics and Statistics Working Paper Series 58, Villanova School of Business Department of Economics and Statistics.
    3. Omar Ikbal Tawfik & Hamada Elsaid Elmaasrawy, 2024. "Determinants of the Quality of Tax Audits for Content Creation Tax and Tax Compliance: Evidence From Egypt," SAGE Open, , vol. 14(1), pages 21582440241, February.

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    More about this item

    Keywords

    Earned income tax; Tax compliance; Withholding; Event study;
    All these keywords.

    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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