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Tax Evasion, Information Reporting, and the Regressive Bias Hypothesis

Simon Boserup () and Jori Pinje

No 2010-13, EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics

Abstract: 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.

JEL-codes: D82 H26 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-pub
Date: 2010-10
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Working Paper: Tax evasion, information reporting, and the regressive bias hypothesis (2011) Downloads
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