An Empirical Analysis of the Impact of Government Tax and Auditing Policies on the Size of the Underground Economy: The Case of the United States, 1973-94

Richard Cebula ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study empirically examines the impact of federal income tax rates, IRS penalties on unpaid tax liabilities, and audit rates by the Internal Revenue Service on the size of the underground economy in the United States. Recent data generated by Edgar Feige are used to measure the size of the underground econ­omy. Based on ordinary least squares estimates, it is found that the maximum marginal personal income tax rate raises the size of the underground economy. In addition, the size of the underground economy is found to be a decreasing function of both the percentage of tax returns audited and the penalties imposed by the IRS on unpaid taxes.

Keywords: tax evasion; tax rates; IRS audit rates; IRS penalties (search for similar items in EconPapers)
JEL-codes: H20 H24 H26 (search for similar items in EconPapers)
Date: 1996-01-18
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Citations: View citations in EconPapers (49)

Published in The American Journal of Economics and Sociology 2.56(1997): pp. 173-186

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:49810

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