The effects of introducing withholding and third-party reporting on tax collections: Evidence from the U.S. state personal income tax

Sutirtha Bagchi and Libor Dusek

Journal of Public Economics, 2021, vol. 204, issue C

Abstract: This paper examines the impact of introducing withholding of the personal income tax by state governments in the U.S. We exploit the staggered adoption of withholding by individual states over the period 1948–1987 to construct event study estimates. We obtain a robust finding: Introducing withholding led to an immediate and permanent increase in income tax revenues by about 29 percent, holding tax rates constant. The result is consistent with the crucial role of withholding and third-party reporting in improving tax compliance. We consider several alternative explanations such as changes to the tax base and increases in enforcement activity but these explanations lack support. There is some evidence that non-filing substantially decreased following the introduction of withholding.

Keywords: Tax evasion; Third-party reporting; Withholding; Tax base changes; Event study (search for similar items in EconPapers)
JEL-codes: H11 H21 H26 H71 N42 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:204:y:2021:i:c:s0047272721001730

DOI: 10.1016/j.jpubeco.2021.104537

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