Tax Evasion, Technology, and Inequality

James Alm ()

No 2101, Working Papers from Tulane University, Department of Economics

Abstract: Ensuring compliance with the tax laws is an enduring challenge for all governments. However, the methods by which governments enforce the tax laws, and by which individuals and firms evade their taxes, change over time, due at least in part to changing technology. In this paper I examine how changing technology, especially changes driven by the transformation of information into digital formats for use by computers, seems likely to affect tax evasion in the years ahead. I argue that many of these changes in technology will improve the ability of governments to decrease tax evasion, mainly by increasing the flow of information to governments. However, I also argue that these changes in technology will open up new avenues by which some individuals and some firms can evade (and avoid) taxes. At this point it is unclear which trend will dominate, so that the effects of technology on the overall level of tax evasion is uncertain. Even so, I believe that the distributional effects of these technological changes are more predictable, given the differential effects of technology on the abilities of individuals of different levels and types of income to evade their taxes. Indeed, I argue that changing technology will make evasion increasingly difficult for most taxpayers, especially those subject to employer withholding and third party information reporting, but that evasion will be increasingly viable for a small number of taxpayers, especially very high income taxpayers. Regardless of the overall impact of technology on the level of tax evasion, I conclude that the effects of technology will likely increase economic inequality.

Keywords: Tax evasion; Inequality; Technology; Digitalization (search for similar items in EconPapers)
JEL-codes: D03 H22 H26 (search for similar items in EconPapers)
Date: 2021-01
New Economics Papers: this item is included in nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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http://repec.tulane.edu/RePEc/pdf/tul2101.pdf First Version, January 2021 (application/pdf)

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Journal Article: Tax evasion, technology, and inequality (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:tul:wpaper:2101

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