Working Paper: NBER ID: w7473
Authors: Joel Slemrod; Shlomo Yitzhaki
Abstract: When tax structure changes, people may alter their consumption basket, but they also may call and give new instructions to their accountant, change their reports to the IRS, change the timing of transactions, and undertake a range of other actions that do not directly involve a change in their consumption basket. This survey argues that acknowledging the variety of behavioral responses to taxation changes the answers to traditional subjects of inquiry such an incidence, optimal progressivity, and optimal tax structure, and also raises a whole new set of policy questions, such as the appropriate level of resources to devote to administration and enforcement, and how these resources should be deployed. For some purposes, such as estimating the marginal cost of funds, and subject to some qualifications, the nature of the behavioral response does not matter, and only the total magnitude of response does. However, with respect to real behavioral responses such as labor supply, it is natural to presume that the response is an immutable function of preferences. With respect to avoidance and evasion, though, this is not appropriate because there are a variety of policy instruments that can affect the magnitude of responses, implying that the elasticity of response is itself a policy instrument.
Keywords: Tax avoidance; Tax evasion; Tax administration; Public finance
JEL Codes: H26; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tax structures (H20) | taxpayer behavior (H26) |
| tax avoidance and evasion (H26) | tax policy and administration (H26) |
| administrative costs associated with tax collection (H26) | evolution of tax structures (H20) |
| decrease in compliance costs (K29) | expansion of tax base (H29) |
| changes in tax law (K34) | taxpayer behavior (H26) |
| enforcement policies (K40) | taxpayer behavior (H26) |
| probability of detection and penalties (K42) | tax noncompliance (H26) |
| tax policy (H20) | consumption patterns (D10) |