Complexity and the Tax Code: A Textual Analysis

Charles Swenson, Hao Qu and Xiao Song

Public Finance Review, 2024, vol. 52, issue 4, 466-538

Abstract: Using a model from political economy, we predict that U.S. Internal Revenue Code sections and related Treasury Regulations will have more verbiage, complex terms, and cognitive complexity for tax-reducing sections to limit free riding and the scope of tax benefits. Using textual analysis, we find our model's predictions are generally supported using both Code and Regulations from 1997 to 2017. Importantly, the complexity of tax-reducing sections has a disproportionate impact on the Code and Regulations as a whole, which in turn may result in outsized compliance time and costs. Policy implications include that complexity (and related deadweight costs) may be an unavoidable feature of tax law, that tax benefits may be underutilized, and that suboptimal taxpayer behavior may result.

Keywords: taxation; political economy; textual analysis; H24; H25; M40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:52:y:2024:i:4:p:466-538

DOI: 10.1177/10911421241233110

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