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An Empirical Note on Determinants of Income Tax Evasion, 1973-1997

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  • Cebula, Richard
  • McGrath, Richard

Abstract

This note empirically investigates the impact of various factors on income tax evasion in the U.S. over the 1973-1997 period. The estimate indicates that income tax evasion is an increasing function of the average effective federal personal income tax rate and the public's dissatisfaction with government and a decreasing function both of penalties imposed by the IRS on unpaid taxes and IRS audit rates. However, the average effective social security tax rate appears not to significantly affect tax evasion. A trend variable that may to some extent crudely reflect the impact of improved IRS income detection technologies over time exhibits a negative and significant coefficient.

Suggested Citation

  • Cebula, Richard & McGrath, Richard, 2000. "An Empirical Note on Determinants of Income Tax Evasion, 1973-1997," MPRA Paper 58549, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:58549
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    References listed on IDEAS

    as
    1. Pestieau, Pierre & Possen, Uri & Slutsky, Steve, 1994. "Optimal Differential Taxes and Penalties," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 15-27.
    2. Cebula, Richard, 1996. "An Empirical Analysis of the Impact of Government Tax and Auditing Policies on the Size of the Underground Economy: The Case of the United States, 1973-94," MPRA Paper 49810, University Library of Munich, Germany.
    3. Paolo M. Panteghini, 2000. "Tax Evasion and Entrepreneurial Flexibility," Public Finance Review, , vol. 28(3), pages 199-209, May.
    4. Feige, Edgar L, 1994. "The Underground Economy and the Currency Enigma," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 119-136.
    5. Baldry, Jonathan C, 1987. "Income Tax Evasion and the Tax Schedule: Some Experimental Results," Public Finance = Finances publiques, , vol. 42(3), pages 357-383.
    6. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    7. Frank Atkins, 1999. "Macroeconomic time series and the monetary aggregates approach to estimating the underground economy," Applied Economics Letters, Taylor & Francis Journals, vol. 6(9), pages 609-611.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    underground economy; income tax evasion; benefit-cost model;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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