Tax Evasion, Information Reporting, and the Regressive Bias Hypothesis

Publikation: Working paperForskning


  • WP 2010-13

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A robust prediction from the tax evasion literature is that optimal auditing induces a regressive bias in effective tax rates compared to statutory rates. If correct, this will have important distributional consequences. Nevertheless, the regressive bias hypothesis has never been tested empirically. Using a unique data set, we provide evidence in favor of the regressive bias prediction but only when controlling for the tax agency's use of third-party information in predicting true incomes. In aggregate data, the regressive bias vanishes because of the systematic use of third-party information. These results are obtained both in simple reduced-form regressions and in a data-calibrated state-of-the-art model.
UdgiverEconomic Policy Research Network, Department of Economics, University of Copenhagen
Antal sider30
StatusUdgivet - 2010

Bibliografisk note

JEL classification: D82, H26, K42

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