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Tax Evasion and Avoidance

Paper Session

Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 107-A
Hosted By: American Economic Association
  • Chair: Sutirtha Bagchi, Villanova University

Quasi-experimental Evidence on Income Tax Return Behavior and the Elasticity of Taxable Income

Simeon Schaechtele
University of Erlangen-Nuremberg


The taxable income elasticity and its decomposition into different response
margins determine the revenue and efficiency properties of taxation. Exploiting the
German personal income tax allowance threshold as quasi-experimental variation in
tax incentives, this paper provides new bunching-based estimates of a local elasticity
of taxable income in the order of 0.1. The 2007 tax administration data further
allow me to gain insights into the margins behind the response, suggesting that
itemized deductions drive the bunching patterns. For example, I do not find bunching
for taxpayers who forego itemization, while for taxpayers with non-wage income,
itemized deductions account for a sizable proportion of the sharp bunching mass. As
the rules for tax filing, deductibility and enforcement are policy choices, the results
caution against interpreting the elasticity of taxable income as invariant parameter
pinning down optimal tax schedules.

Taxpayer Responses to Third-party Income Reporting: Preliminary Evidence From a Natural Experiment in the Taxicab Industry

Bibek Adhikari
Illinois State University
James Alm
Tulane University
Brett Collins
Internal Revenue Service
Michael Sebastiani
Internal Revenue Service
Eleanor Wilking
University of Michigan


This paper uses universe of confidential tax returns data from small businesses to estimate their behavioral responses to Form 1099-K, a novel third-party income reporting law that requires payment companies (e.g. Banks, Visa, MasterCard, and Paypal) to report gross amount of all payment transactions the businesses receive through their payment system to the IRS. Since the Form 1099-K is a federal law that affects all business across the U.S., there is no obvious control group. We exploit the fact that many cities in the U.S. have independently and for reasons not related to Form 1099-K passed laws that mandate taxicabs to install credit card readers in their vehicle (e.g, New York in 2008 and New Orleans in 2012) to construct the control group. The introduction of credit card readers in taxicabs discontinuously increases the share of revenue from credit cards, which are reported in the Form 1099-K. Thus, taxicabs operating in cities with such laws will be affected by Form 1099-K more than those operating in cities without such laws, providing us a very natural control group. We find that taxpayers respond to third-party information reporting in offsetting ways; that is, firms reported more revenue after the introduction of Form 1099-K, but the increase in reported revenue was accompanied by an offsetting increase in reported expenses.

Preferences over Taxation of High Income Individuals: Evidence from Online and Laboratory Experiments

Eckhard Janeba
University of Mannheim
Dirk Engelmann
Humboldt University
Lydia Mechtenberg
Hamburg University
Nils Wehrhöfer
University of Mannheim


Mobility of high income individuals across borders puts pressure on governments
to lower taxes. A central tenet of the underlying theoretical and empirical
models is that mobile individuals react to tax differentials through migration, and
in turn immobile households vote for lower taxes in the face of a migration threat.
In light of research on behavioural economics it is not clear, however, whether this
premise holds. We use an experimental survey design and elicit answers from more
than 3,000 households in the German Internet Panel (GIP), who are assigned roles
as rich or poor and must choose a redistributive tax. We use various treatments to
understand the role of mobility and ideology in tax choice. We observe substantial
deviations from the predicted theoretical equilibrium. In many cases comparative
static results prevail however. Political ideology matters: left-leaning households
choose higher taxes than right-leaning persons, and center-right leaning individuals
tend to emigrate more when the tax at home is high. We compare the results
with those from a closely related lab experiment, in which subjects appear to behave
more in line with standard predictions.
JEL Classifications
  • H2 - Taxation, Subsidies, and Revenue