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Optional (non-)filing and effective taxation

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  • Hauck, Tobias
  • Wallossek, Luisa

Abstract

Many countries have automatic wage tax withholding systems with tax non-filing options for some taxpayers. We show that this has sizable and potentially unintended implications for effective taxation because taxes are often over-withheld. Low-income taxpayers pay more taxes than they have to because they frequently do not file. Using German administrative tax data, we document that the average non-filer overpays €119 in one year, equivalent to a 1.2 percentage point increase in the average tax rate. Non-filing acts as a form of “reverse evasion”: It weakens the effective tax progressivity by increasing tax rates at the bottom of the income distribution.

Suggested Citation

  • Hauck, Tobias & Wallossek, Luisa, 2024. "Optional (non-)filing and effective taxation," Journal of Public Economics, Elsevier, vol. 238(C).
    • Handle: RePEc:eee:pubeco:v:238:y:2024:i:c:s0047272724001233
    DOI: 10.1016/j.jpubeco.2024.105187
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    References listed on IDEAS

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    Cited by:

    1. Bach, Stefan & Bartels, Charlotte & Neef, Theresa, 2024. "The distribution of national income in Germany, 1992-2019," IWH Discussion Papers 25/2024, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Tax filing; Optional filing; Effective taxation; Redistribution; Tax progressivity;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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