Working Paper: NBER ID: w2096
Authors: Herman B. Leonard; Richard J. Zeckhauser
Abstract: Amnesties are widely used in society to rehabilitate past sinners, to collect resources, such as library books, that would otherwise be unrecoverable, and to make enforcement easier by reducing the ranks of delinquents. Over the past four years, tax amnesties have emerged as a major instrument of state revenue policy. Twenty states conducted amnesties. Record collections were made by New York ($360 million) and Illinois (income tax amnesty dollars 3.4% of collections). Amnesties took in dollars that would probably have escaped otherwise, and tax rolls were bolstered. Tax amnesties also have costs, however. They may anger honest taxpayers, diminish the legitimacy of the tax system by pardoning past evasion, and decrease compliance by making future amnesties seem more likely. Shou1.d the federal government, aswirl in tax reform and suffering from an estimated $100 billion tax evasion problem, now offer an amnesty of its own? What type of federal program would most likely be offered? What would it be likely to accomplish? State tax amnesties have generally bean coupled with enhanced enforcement efforts, a feature intended to preserve the legitimacy of the tan system. The amnesty/enforcement combination twists the penalty schedule, lowering it non raising it later, in that way encouraging prompt payment. With no past sins to hide, future compliance also becomes less costly, hence more probable. Any federal amnesty, we predict, would be accompanied by a strengthening of enforcement. After reviewing the state experience, we speculatively estimate that a federal amnesty/enforcement to annual revenues on the order of $10 billion.
Keywords: Tax Amnesty; Tax Compliance; Revenue Generation; Enforcement
JEL Codes: H26; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state tax amnesties + enhanced enforcement efforts (H26) | increase in future voluntary compliance with tax laws (H26) |
| amnesty programs (H26) | improve future compliance (G38) |
| amnesty programs (H26) | revenue generation (H27) |
| amnesty + enforcement (H26) | preserve legitimacy of tax system (H26) |
| enhanced enforcement (K40) | exceed direct revenues from amnesty (H26) |
| amnesty + enforcement (H26) | substantial increase in tax revenue (H27) |
| amnesty programs (H26) | angering law-abiding taxpayers (H26) |
| amnesty programs (H26) | diminishing perceived legitimacy of tax system (H26) |