Joel Slemrod

Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota

Abstract In 1995 a group of 1724 randomly selected Minnesota taxpayers was informed by letter that the returns they were about to file would be ‘closely examined’. Compared to a control group that did not receive this letter, low and middle-income taxpayers in the treatment group on average increased tax payments compared to the previous year, which we interpret as indicating the presence of noncompliance. The effect was much stronger for those with more opportunity to evade; in fact, the difference in differences is not statistically significant for those who do not have self-employment or farm income, and do not pay estimated tax. Surprisingly, however, the reported tax liability of the high income treatment group fell sharply relative to the control group.

Are corporate tax rates, or countries, converging?

Abstract The statutory rate and effective tax rate imposed on corporation income—as well as the dispersion of these rates—began to decline in the 1980s. Is this due to changes in the domestic determinants of corporate taxation or increases in international pressures for tax competition? This paper finds clear evidence that the corporate tax rate is insulated from a countrys revenue needs: across countries, there is no association of the expenditure–GDP ratio with the corporate statutory rate and only weak evidence of a positive association with the average rate. There is suggestive, but not definitive, evidence that the domestic role of the corporate tax as a backstop to the individual income tax is important: across countries, there is indeed a strong association between the top individual rate and the top statutory corporate rate. There is intriguing evidence about the role of international competitive pressures on corporate taxation. Measures of openness are negatively associated with statutory corporate rates, although not with revenues collected as a fraction of GDP. Strikingly, larger, more trade-intensive countries do collect more corporate tax, but this may be because these countries are more attractive venues for investment.

What Do Cross-Country Studies Teach about Government Involvement, Prosperity, and Economic Growth?

OVER THE LAST three decades, in all industrialized countries, there has been an enormous expansion of government involvement in the economy, as measured by the share of national income going to taxes or government expenditures. Figure 1 shows that, averaged over the OECD countries, the ratio of either tax collections or government expenditures to GDP rose sharply between 1970 and 1990. Arguably it is this expansion of government that uniquely characterizes the postWorld War II era. From the beginning, the growth in government has attracted critics who view this as an ominous development, endangering the political rights of the citizenry and economic prosperity. Leav-ing aside the issues of political freedom, this paper critically evaluates the evidence about the influence of government tax and expenditures on economic prosperity and growth. It is worth pausing to reflect on what evidence would constitute support for the proposition that expanded government activity has been misguided. One option would be to assess the extent to which the goals of government expansion-provision of public goods, maintenance of full employment, insurance against social risks, income maintenance, and adequate provision of certain basic goods and services such as food, shelter, and medical care to all-have been achieved. Another would be to assess the cost, in terms of a lower average standard of living, of the programs designed to achieve this goal. Economists are a long way from consensus on measuring either the benefits or costs of government

The effect of taxes on investment and income shifting to Puerto Rico

The income of Puerto Rican affiliates of U.S. corporations is essentially untaxed by either Puerto Rico or the United States. This lowers the tax penalty on investment there, and also makes it attractive to shift reported taxable income from the U.S. parent corporation to the Puerto Rican affiliate. This paper investigates these two interrelated impacts of taxation by developing a structural econometric model of the joint decisions regarding investment and income shifting, and estimating the model using firm-level data on the activity U.S. corporations in Puerto Rico. The results suggest that the income shifting advantages are the predominant reason for U.S. investment in Puerto Rico.

An Empirical Test for Tax Evasion

This paper develops a methodology that uses microeconomic data from individual tax returns to test for the presence of tax evasion. The test is then applied to a large sample of taxpayers drawn from the U.S. Treasury tax file for 1977. The frequency of evasion indicated by the test is significantly greater than zero and within the wide range that other evidence suggests is the extent of evasion. The associations between evasion and characteristics of the taxpayer such as marginal tax rate, income, age, and marital status are also investigated and compared to the findings of earlier studies.

Taxes and the User Cost of Capital for Owner‐Occupied Housing

Owner-occupied housing is said to be favored in the tax code because mortgage interest and property taxes can be deducted in the computation of ones income tax base in spite of the fact that the returns from owner- occupied housing = not taxed. The special tax treatment reduces the user cost of capital for owner-occupied homing. The issue treated in this paper is the measurement of the tax rate to be employed in the user cost calculations. It is argued that different tax rates am appropriate for the tenure choice and quantity-demanded decisions, and that these values depend on the detailed tax position of the household and the method of finance. Average 1977 tax rates for households in different income ranges are calculated using the NBER TAXSIM microeconomic data file on individual tax returns

Estimating tax noncompliance with evidence from unaudited tax returns

This article estimates the degree of tax noncompliance using evidence from unaudited tax returns. Measurements of noncompliance are derived from the relationship between reported charitable contributions and reported income from wages and salary as compared to alternative reported income sources such as self-employment, farm and other small business income. Assuming that the source of ones income is unrelated to ones charitable inclinations and that the ratio of true income to taxable income does not vary by income source, any difference in the relationship between charitable contributions and the source of income can be attributed to (relative) underreporting by the individual. We find that the implied amount of noncompliance is significant and that it varies by source of income, as well as between positive and negative values of each type of income. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

The Income Tax Compliance Cost of Big Business

A survey of 1,329 of the largest corporations m the United States reveals that the average annual cost of compliance with federal and subfederal corporation income taxes is approximately

Tax competition with parasitic tax havens

1.565 million, implying an aggregate annual compliance cost of over

Housing finance imperfections, taxation, and private saving: A comparative simulation analysis of the United States and Japan

2 billion. As a fraction of revenue raised, these compliance costs are lower than estimates that have been made for the individual income tax. The cost-to-revenue ratio is higher for state corporate tax systems than it is for the federal tax system, presumably reflecting the nonuniformity of state tax systems There is near unanimity among senior corporate tax officers that the Tax Reform Act of 1986 added complexity to the tax system, resulting in a combination of higher compliance costs and less accurate information transmission. They point to, in particular, the alternative minimum tax, inventory capitalization rules, and the taxation of foreign-source income as growing sources of complexity.