Working Paper: NBER ID: w4581
Authors: Don Fullerton; Marios Karayannis
Abstract: The efficiency cost of capital misallocations between the corporate sector and the noncorporate sector is typically measured using statutory tax differences. Corporate-source income tax compliance is high because of third party reporting, however, while noncorporate rental income tax compliance is low. Differential evasion thus exacerbates statutory differences and enlarges the efficiency cost. To measure this effect, we build a numerical general equilibrium model where households simultaneously choose portfolios of risky assets and fractions of income to report.
Keywords: tax evasion; capital allocation; public economics
JEL Codes: H26; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| removal of statutory tax differences (H29) | efficiency gain (D61) |
| 20% of noncorporate capital income evaded (H26) | revised efficiency gain (D61) |
| tax evasion (H26) | efficiency cost of misallocations (D61) |
| increased enforcement (K42) | allocational efficiency (D61) |
| increased enforcement (K42) | revenue (H27) |
| Tax Reform Act of 1986 (H20) | evasion incentives (H26) |
| Tax Reform Act of 1986 (H20) | efficiency gain (D61) |