Where Has the Currency Gone? And Why? The Underground Economy and Personal Income Tax Evasion in the U.S., 1970-2008

Richard Cebula ()

MPRA Paper from University Library of Munich, Germany

Abstract: Unaccounted for currency in the U.S. is argued to reflect the presence of widespread income tax evasion. This empirical study seeks to identify determinants of the underground economy in the U.S. in the form of federal personal income tax evasion over the period 1970-2008. In this study, we use the most recent data available on personal income tax evasion, data that are derived from the General Currency Ratio Model and measured in the form of the ratio of unreported AGI (adjusted gross income) to reported AGI. Other studies of federal income tax evasion for the U.S. are dated and do not use data this current. It is found that personal income tax evasion was an increasing function of the maximum marginal federal personal income tax rate, the percentage of federal personal income tax returns characterized by itemized deductions, and unpopular military engagements, in this case, the War in Iraq, and a decreasing function of the Tax Reform Act of 1986 (during its first two years of being implemented), the ratio of the tax free interest rate yield on high grade municipals to the interest rate yield on ten year Treasury notes (as a measure of the incentive effect of a better return to tax avoidance, which is legal), and higher audit rates of filed federal income tax returns (as a measure of risk from tax evasion) by IRS personnel.

Keywords: underground economy; tax evasion; tax rates; audit rates (search for similar items in EconPapers)
JEL-codes: H24 H26 H31 K42 (search for similar items in EconPapers)
Date: 2014-04-12
New Economics Papers: this item is included in nep-acc, nep-his, nep-iue, nep-law and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Where Has The Currency Gone? And Why? The Underground Economy And Personal Income Tax Evasion In The U.S., 1970-2008 (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:55284

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