Optional (non-)filing and effective taxation

Tobias Hauck and Luisa Wallossek

Journal of Public Economics, 2024, vol. 238, issue C

Abstract: Many countries have automatic wage tax withholding systems with tax non-filing options for some taxpayers. We show that this has sizable and potentially unintended implications for effective taxation because taxes are often over-withheld. Low-income taxpayers pay more taxes than they have to because they frequently do not file. Using German administrative tax data, we document that the average non-filer overpays €119 in one year, equivalent to a 1.2 percentage point increase in the average tax rate. Non-filing acts as a form of “reverse evasion”: It weakens the effective tax progressivity by increasing tax rates at the bottom of the income distribution.

Keywords: Tax filing; Optional filing; Effective taxation; Redistribution; Tax progressivity (search for similar items in EconPapers)
JEL-codes: D31 H24 H31 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:238:y:2024:i:c:s0047272724001233

DOI: 10.1016/j.jpubeco.2024.105187

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