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America’s Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S

Edgar Feige and Richard Cebula

MPRA Paper from University Library of Munich, Germany

Abstract: Abstract This study empirically investigates the extent of non compliance with the tax code and the determinants of federal income tax evasion in the U.S. Employing the most recent data we find that 18-19% of total reportable income is not properly reported to the IRS, giving rise to a “tax gap” approaching $500 billion dollars. Three time periods are studied, 1960-2008, 1970-2008, and 1980-2008. It is found across study periods that income tax evasion is an increasing function of the average effective federal income tax rate, the unemployment rate, public dissatisfaction with government, and per capita real GDP (adopted as a measure of income), and a decreasing function of the Tax Reform Act of 1986 (during its first two years of being implemented). Modest evidence of a negative impact of IRS audit rates on tax evasion is also detected.

Keywords: Underground economy; unreported economy; tax evasion; tax gap; non compliance; Federal income tax (search for similar items in EconPapers)
JEL-codes: E26 E41 E52 H26 O17 (search for similar items in EconPapers)
Date: 2011-01
New Economics Papers: this item is included in nep-acc and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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