Working Paper: NBER ID: w1756
Authors: Joel Slemrod
Abstract: The purpose of this paper is to provide estimates of the probable saving in the resource cost of complying with the tax law that would result from simplifying the individual income tax law. These estimates are based on an econometric analysis of the tax filing behavior in 1982 of a sample of Minnesota taxpayers. A simple model of tax compliance behavior based on utility maximization is first presented in order to suggest the important determinants of compliance behavior. The empirical model treats the discrete choices of whether to itemize deductions and whether to hire professional tax advice, and the choice of how much time and money to spend, conditional on the discrete choices made. Simulations based on the econometric results suggest that significant resource saving could be expected from eliminating the system of itemized deductions, although no significant saving from changing to a single-rate tax structure can be confidently predicted.
Keywords: Tax Simplification; Tax Compliance; Econometric Analysis; Resource Costs
JEL Codes: H24; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| elimination of itemized deductions (H20) | resource savings (Q20) |
| tax rate (H25) | compliance costs (Q52) |
| age (J14) | time and money spent on tax compliance (H26) |
| education (I29) | time and money spent on tax compliance (H26) |
| tax rate (H25) | hiring professional assistance (L84) |
| itemization decision (D91) | hiring professional assistance (L84) |