Both buyers and sellers of goods and services may benefit from letting their economic transactions go unrecorded for tax purposes. The supplier reduces his tax burden by underreporting income, whereas the consumer gains from buying a non-taxed lower-priced product. The distributional...

This paper develops a methodology in integrating the information from a micro-unit data file of tax returns into the framework of a general equilibrium model of taxation with endogenous financial behavior. It discusses how the available information on capital income flows can be used to impute...

The resource cost of operating the income tax system is large, totaling as much as seven to eight percent of revenue raised. One source of this cost is the system of itemized deductions, which can require extensive record keeping and calculation. This paper estimates the resource cost of...

The strength of the behavioral response to a tax rate change depends on the environment individuals operate in, and may be manipulated by instruments controlled by the government. We first derive a measure of the social benefit to affecting this elasticity. The paper then examines this effect in...

We develop an optimal tax framework that combines two recent extensions of tax analysis: a tax-systems emphasis on non-rate policy instruments, and a recognition of the role of behavioral biases. Although the implications of taxpayers' biases for optimal tax rates have received considerable...

We study the optimal observability of the tax base within the standard linear income tax problem, where observability is determined by the government’s investment into the accurate measurement of the tax base. We characterize the optimal level of observability and derive a new expression for...

This reports presents evidence on the compliance costs of medium-sized businesses based on a survey conducted by the Office of Tax Policy Research. The survey attempts to measure the size and composition of compliance costs and to identify firm characteristics that affect these costs. Our...

We investigate the optimal rate structure of an income tax system that is constrained to have only two brackets, plus a demogrant. We find that, in a two-class economy, Pareto efficient tax schedules feature at least one marginal tax rate equal to zero, and that the marginal tax rate may be...

This paper generalizes the standard model of how taxes affect the labor-leisure choice by allowing individuals to change both their labor supply and avoidance effort in response to tax changes. Doing so reveals that both the income and substitution effect of taxes depend on both preferences and...

This paper reports on the results of a controlled experiment in Minnesota in which a random sample of taxpayers was informed that their income tax returns would certainly be closely examined. We analyze reported income of this sample of taxpayers, reported income on their previous year's...