Working Paper: NBER ID: w24049
Authors: Philippe Aghion; Ufuk Akcigit; Matthieu Lequien; Stefanie Stantcheva
Abstract: A common complaint about tax systems is that they are too complex and several countries offer simplified regimes to subsets of taxpayers. But do such regimes simplify tax reporting or just make it easier to evade taxes? We use panel data on the universe of income tax returns in France and the introduction of simplified tax regimes for the self-employed to assess whether individuals’ shift towards these simpler tax regimes–among others, captured by substantial bunching below the eligibility thresholds–is driven by the desire for simplicity or by motives related to tax evasion. Tax evasion plays a significant role in explaining individuals’ attraction to simpler tax regimes. We develop a structural model to quantitatively assess the importance of simplicity and evasion motives. Our preferred estimates indicate a significant preference for tax simplicity, increasing in the degree of simplicity, ranging from 162 to 942 euros per year per self-employed individual, along with a sizable evasion elasticity.
Keywords: Tax Simplicity; Self-Employment; Tax Complexity; Behavioral Responses; France
JEL Codes: H21; H24; H25; H26
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax simplicity (H20) | behavioral responses (D91) |
| complexity of tax system (H29) | financial outcomes (G39) |
| learning about tax system (H20) | adaptation to new tax regimes (H26) |
| tax complexity (H26) | suboptimal regime choices (D71) |
| tax complexity (H26) | leaving money on the table (D46) |