scholarly journals A re-examination of the U.S. underground economy: size, estimation, and policy implications

2009 ◽  
Vol 7 (2) ◽  
pp. 279-295
Author(s):  
Jung-Suk Yu ◽  
M. Kabir Hassan
Keyword(s):  
Income Tax ◽  
Dynamic Error ◽  
Underground Economy ◽  
Policy Implications ◽  
Tax Rates ◽  
Size Estimation ◽  
Misspecified Models ◽  
Currency Demand ◽  
Statistical Issues ◽  
The U.S

We re-examine the size of the underground economy in the U.S. between 1972 and 2006 after properly adjusting for several statistical issues relating to its estimation. The dynamic error-correction-based currency demand approach confirms that income tax rates have no contemporaneous effect on currency demand, but they have positive and significant effects with a one-period lag. In addition, we observe that the size of the underground economy in the U.S. has grown considerably during the post-1990 period from $148.7 billion (3.4% of official GDP) in 1973 to $691.2 billion (6.0% of official GDP) in 2006. We also find that misspecified models have a propensity for overstating the size of the underground economy. During recessionary periods, the underground and official economies move in a same direction, although the growth rates of the underground economy are more unpredictable than those of the official economy.

scholarly journals How Progressive is the U.S. Federal Tax System? A Historical and International Perspective

2007 ◽  
Vol 21 (1) ◽  
pp. 3-24 ◽  
Author(s):  
Thomas Piketty ◽  
Emmanuel Saez
Keyword(s):  
United States ◽  
United Kingdom ◽  
Income Tax ◽  
The United States ◽  
Tax Rates ◽  
Tax System ◽  
Tax Progressivity ◽  
The United Kingdom ◽  
Income Groups ◽  
The U.S

This paper provides estimates of federal tax rates by income groups in the United States since 1960, with special emphasis on very top income groups. We include individual and corporate income taxes, payroll taxes, and estate and gift taxes. The progressivity of the U.S. federal tax system at the top of the income distribution has declined dramatically since the 1960s. This dramatic drop in progressivity is due primarily to a drop in corporate taxes and in estate and gift taxes combined with a sharp change in the composition of top incomes away from capital income and toward labor income. The sharp drop in statutory top marginal individual income tax rates has contributed only moderately to the decline in tax progressivity. International comparisons confirm that is it critical to take into account other taxes than the individual income tax to properly assess the extent of overall tax progressivity, both for time trends and for cross-country comparisons. The pattern for the United Kingdom is similar to the U.S. pattern. France had less progressive taxes than the United States or the United Kingdom in 1970 but has experienced an increase in tax progressivity and has now a more progressive tax system than the United States or the United Kingdom.

scholarly journals Cheating Ourselves: The Economics of Tax Evasion

2007 ◽  
Vol 21 (1) ◽  
pp. 25-48 ◽  
Author(s):  
Joel Slemrod
Keyword(s):  
Tax Evasion ◽  
Income Tax ◽  
Policy Implications ◽  
Legal Responsibility ◽  
Tax System ◽  
The Face ◽  
The U.S ◽  
Over Time

No government can announce a tax system and then rely on taxpayers' sense of duty to remit what is owed. Some dutiful people will undoubtedly pay what they owe, but many others will not. Over time the ranks of the dutiful will shrink, as they see how they are being taken advantage of by the others. Thus, paying taxes must be made a legal responsibility of citizens, with penalties attendant on noncompliance. But even in the face of those penalties, substantial tax evasion exists. Tax evasion is widespread, always has been, and probably always will be. This essay reviews what is known about the magnitude, nature, and determinants of tax evasion, with an emphasis on the U.S. income tax. It then places this information into a conceptual context, examining various models and theories, and considers policy implications.

Measuring “Schmeduling”

2019 ◽  
Vol 87 (5) ◽  
pp. 2399-2438 ◽  
Author(s):  
Alex Rees-Jones ◽  
Dmitry Taubinsky
Keyword(s):  
Income Tax ◽  
Mental Representations ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Policy Relevance ◽  
Marginal Tax Rates ◽  
Federal Income Tax ◽  
The U.S ◽  
Empirical Framework

Abstract What mental models do individuals use to approximate their tax schedule? Using incentivized forecasts of the U.S. Federal income tax schedule, we estimate the prevalence of the “schmeduling” heuristics for constructing mental representations of nonlinear incentive schemes. We find evidence of widespread reliance on the “ironing” heuristic, which linearizes the tax schedule using one’s average tax rate. In our preferred specification, 43% of the population irons. We find no evidence of reliance on the “spotlighting” heuristic, which linearizes the tax schedule using one’s marginal tax rate. We show that the presence of ironing rationalizes a number of empirical patterns in individuals’ perceptions of tax liability across the income distribution. Furthermore, while our empirical framework accommodates a rich class of other misperceptions, we find that a simple model including only ironers and correct forecasters accurately predicts average underestimation of marginal tax rates. We replicate our finding of prevalent ironing, and a lack of other systematic misperceptions, in a controlled experiment that studies real-stakes decisions across exogenously varied tax schedules. To illustrate the policy relevance of the ironing heuristic, we show that it augments the benefits of progressive taxation in a standard model of earnings choice. We quantify these benefits in a calibrated model of the U.S. tax system.

scholarly journals Where Has The Currency Gone? And Why? The Underground Economy And Personal Income Tax Evasion In The U.S., 1970-2008

2014 ◽  
Vol 6 (1) ◽  
pp. 36-52
Author(s):  
Richard J. Cebula
Keyword(s):  
Interest Rate ◽  
Tax Evasion ◽  
Income Tax ◽  
Tax Avoidance ◽  
Underground Economy ◽  
Personal Income ◽  
Personal Income Tax ◽  
Tax Returns ◽  
Federal Income Tax ◽  
The U.S

Unaccounted for currency in the U.S. is argued to reflect the presence of widespread income tax evasion. This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of federal personal income tax evasion over the period 1970-2008. In this study, we use the most recent data available on personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI (adjusted gross income) to reported AGI. Other studies of federal income tax evasion for the U.S. are dated and do not use data this current. It is found that personal income tax evasion was an increasing function of the maximum marginal federal personal income tax rate, the percentage of federal personal income tax returns characterized by itemized deductions, and unpopular military engagements, in this case, the War in Iraq, and a decreasing function of the Tax Reform Act of 1986 (during its first two years of being implemented), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes (as a measure of the incentive effect of a better return to tax avoidance, which is legal), and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel.

Problems of the US Economic Policy

2013 ◽  
pp. 129-143
Author(s):  
V. Klinov
Keyword(s):  
Economic Policy ◽  
Real Estate ◽  
Full Employment ◽  
Tax Rates ◽  
Equitable Distribution ◽  
Investment Rate ◽  
The Us ◽  
Budget Systems ◽  
Enterprise Activity ◽  
The U.S

How to provide for full employment and equitable distribution of incomes and wealth are the keenest issues of the U.S. society. The Democratic and the Republican Parties have elaborated opposing views on economic policy, though both parties are certain that the problems may be resolved through the reform of the federal tax and budget systems. Globalization demands to increase incentives for labor and enterprise activity and for savings to secure proper investment rate. Tax rates for labor and enterprise incomes are to be low, but tax rates for consumption, real estate and land should be progressive.

A Model of Multinational Income Shifting and an Application to Tax Planning with E-Commerce

2014 ◽  
Vol 36 (2) ◽  
pp. 27-53 ◽  
Author(s):  
Kenneth J. Klassen ◽  
Stacie K. Laplante ◽  
Carla Carnaghan
Keyword(s):  
Tax Planning ◽  
Investment Model ◽  
Income Shifting ◽  
Tax Rates ◽  
Foreign Investments ◽  
Effective Tax Rates ◽  
Tax Rate ◽  
Foreign Earnings ◽  
Joint Consideration ◽  
The U.S

ABSTRACT: This manuscript develops an investment model that incorporates the joint consideration of income shifting by multinational parents to or from a foreign subsidiary and the decision to repatriate or reinvest foreign earnings. The model demonstrates that, while there is always an incentive to shift income into the U.S. from high-foreign-tax-rate subsidiaries, income shifting out of the U.S. to low-tax-rate countries occurs only under certain conditions. The model explicitly shows how the firms' required rate of return for foreign investments affects both repatriation and income shifting decisions. We show how the model can be used to refine extant research. We then apply it to a novel setting—using e-commerce for tax planning. We find firms in manufacturing industries with high levels of e-commerce have economically significant lower cash effective tax rates. This effect is magnified for firms that are less likely to have taxable repatriations. JEL Classifications: G38, H25, H32, M41.

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