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Individuals (e.g., the self-employed and those earning casual wages such as tips) with income not reported to the tax authority by a third party may be less likely to be detected evading taxes relative to the case in which their income is subject to third-party reporting. However, their compliance responses - to changes in the proportion of income that is reported to the tax authority, to changes in audit and tax rates, and so on - are largely unknown, in part because of the difficulty in obtaining information on individual choices in these situations. We use experimental methods to examine individual income tax compliance in settings where individuals differ in the portion of their income that is "matched" (or reported to the tax authority via third-party information) versus "nonmatched" (or not fully reported to the tax authority). Our results indicate that individuals who have relatively more non-matched income exhibit significantly lower tax compliance rates than individuals who earn relatively less non-matched income. Our results also indicate that higher income levels, higher tax rates, and lower audit rates lead to increased tax evasion, but with responses that vary depending upon the proportion of matched versus non-matched income. Working Paper 07-34

Strategies for dealing with evasion include such standard policies as stricter enforcement (e.g., increased audit rates, more extensive audits, larger penalties). However, the exact responses of taxpayers to these enforcement measures are quite difficult to measure with existing field data, and so are not known precisely. In this paper we use experimental methods to examine how individuals respond in their compliance decisions to a "certain" probability of audit and to information concerning the "productivity" of an audit. Our design informs some individuals that their return will be audited with certainty prior to making their compliance decision, while other individuals receive information that they will not be audited; we also inform individuals of the productivity of the audit by stating how much unreported income will be discovered via the audit. We find that the announcement of audits increases the compliance rate of those who are told that they will be audited. However, the compliance rate of those who know that they will not be audited falls, and the net effect is that overall compliance falls. Working Paper 06-43

The Government of Jamaica imposes a variety of taxes on the earnings of workers. Some of these taxes are more properly viewed as "contributions" because individuals are entitled to benefits whose size varies with the amount of the contributions. Some may also be seen as a way to force people to save for old age, for insurance against health problems and occupational injury, or for a home. Several are a surcharge on the individual income tax (IIT), and can be seen as an additional burden on income earners, mainly Pay-As-You-Earn (PAYE) workers. One of these taxes is used to finance government-provided job training programs. In total, these various payroll taxes generate significant amounts of revenues, and constitute a significant additional burden on labor, nearly one-half the burden of the individual income tax itself. There is a widespread belief that the additional burden of the payroll programs has had a substantial range of economic effects on such things as employment, savings, and labor supply. Because of this additional burden, many also believe that these payroll taxes and contributions are escaped via evasion and avoidance in significant amounts, in part by switching labor from the formal to the informal sectors of the Jamaican economy, by switching compensation from taxed to untaxed forms, and by outright evasion.This staff paper analyzes this "system" of payroll taxes and contributions, focusing mainly on the tax and contribution side rather than on the benefit aspects of the contribution programs. The administration of each of these payroll programs is discussed, and the effects of the entire system are also analyzed. Much of the analyses is based on microsimulation models developed in the course of this tax reform project.

In this paper we examine international practices in the ways in which the individual income tax is applied to families, focusing upon country practices in OECD countries. We find that countries differ significantly in their taxation of the family, but that the dominant practice is the choice of the individual rather than the family as the unit of taxation. We also calculate the income tax consequences for "representative" taxpayers across these countries, and find that the differences in taxes between singles and married couples can often be quite large. We conclude that choosing the individual as the tax unit is likely to represent the most equitable approach to income taxation, especially given the increasing complexity of family units in modern societies.

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This report analyzes the individual income tax of Jamaica. We begin by asking the question, "Why have an income tax in Jamaica?" and then move in the second section to a detailed description of the current structure of the tax. The next sections of the report evaluate the current structure of the income tax and summarize the issues that arise from this analysis. The final section is dedicated to an analysis of various policy options. A series of appendices present detailed information on income tax systems around the world, overall revenues in Jamaica, and a detailed analysis of data issues in Jamaica.

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In this paper, we examine the decentralization reforms now underway in Indonesia, focusing on their effects on local government borrowing. Our general conclusion is that the laws and their implementing regulations seem designed mainly to deal with macroeconomic considerations of the central government, and not to create a system to allow local governments to gain access to credit markets. Indeed, this seems likely to be a reasonable immediate goal, given that the pre-conditions for successful local government borrowing are not currently present in Indonesia. However, the long run goal must remain the creation of a viable framework in which local governments face hard budget constraints but are still able to have access to capital markets. It is here where the current framework in Indonesia is inadequate. To this end, we suggest a number of policies that will help in a transition period from the current reliance on direct administrative control of local borrowing to a greater reliance on market discipline policy. In the next section, we briefly discuss the current macroeconomic conditions of Indonesia, and outline the major features of Laws No. 22/1999 and 25/1999, including their provisions that deal with local government borrowing. In section III, we present a general "framework" that establishes some conditions under which different approaches to local government borrowing can be successful, and we apply this framework to local governments in Indonesia in the section IV. We conclude in section V.

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In online commerce, a buyer cannot directly examine the product and has to rely heavily on the reliability of the seller. In this setting, the reputation of the seller, together with any other information signals on the quality of the product, can play an important role in determining the buyer's willingness to pay for the good. However, while the impact of reputation on willingness to pay for homogenous goods has been examined, its impact on heterogeneous goods is largely unkown. This paper examines the effects of the seller's reputation and information signals in online auctions, using U.S. silver Morgan dollar coins in almost uncirculated condition that are sold on eBay. The empirical results indicate that a seller's overall reputation has a positive and statistically impact on buyer's willingness to pay in online auctions, an impact that is larger than for homogenous goods. The results also indicate that negative comments about a seller have larger, and negative, impact on price.

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This report examines how the 2001 recession affected K-12 education spending in Georgia school systems. FRC Report 200

This report examines how the 2001 recession affected K-12 education spending in Georgia school systems. FRC Brief 200

This report explores the effect of the fuel tax suspension on the price of gasoline in Georgia. FRC Brief 143

This report explores the effect of the fuel tax suspension on the price of gasoline in Georgia. FRC Report 143

Taxpayer audits are a central feature of the voluntary compliance system in the United States federal individual income tax. Audits are thought to have a direct deterrent effect on the individuals actually audited. Audits are also believed to have an indirect deterrent effect on individuals not audited, and in fact there is some empirical evidence that audit rates affect compliance beyond the audited individuals themselves. However, empirical studies cannot measure or control for taxpayer awareness of audit risk, and they also cannot uncover the behavioral channels through which the direct and indirect effects operate; that is, the ways in which taxpayers learn about - and communicate among themselves - audit rates, and the subsequent effects on compliance, are not known and cannot be discovered by empirical studies. In this study, we use laboratory experiments to examine several types of information dissemination and taxpayer communication about audit frequency and audit results. These experiments allow us to test hypotheses about the effects of two types of communication of audit policies and results, in order to explore the direct and the indirect effects of audits: "official" information disseminated by the "government" (e.g., the experimenter) and "unofficial", or informal, communications among "taxpayers" (e.g., the subjects). Our results indicate that "unofficial" communications have a strong indirect effect on compliance: messages that indicate that a subject was not audited or was able to cheat actually reduce compliance, while messages that a subject was audited or paid his or her taxes increase compliance. Also, "official" announcements of information may not always encourage voluntary compliance. Working Paper 06-44

This report discusses the tax gap in Georgia and options for increasing tax compliance. FRC Report 133

This report uses monthly gas price data for all 50 U.S. states over the period 1984-1999 to examine the incidence of state gasoline excise taxes. FRC Report 112

This report uses monthly gas price data for all 50 U.S. states over the period 1984-1999 to examine the incidence of state gasoline excise taxes. FRC Brief 112

This paper examines citizens' attitudes toward paying taxes -- what is sometimes termed their "tax morale", or the intrinsic motivation to pay taxes -- focusing on the experience of individuals in the Russian Federation. A unique aspect of our analysis is our ability to study tax morale before (1991), during (1995), and shortly after (1999) the transition of the Russian economy from a centrally planned economy to one based on market reliance. Our empirical analysis uses data from the World Values Survey and the European Values Survey. The results show decay in tax morale in the first four years of the transition from 1991 to 1995, and a small recovery in 1999. These results are consistent with the relevance of social norms in tax compliance, where the widespread perception of tax evasion and of a corrupt and inefficient state led initially to a decline of tax morale. However, the results also suggest that the restoration of a higher level of trust in the state, after some progress in the transition to a market economy, positively influenced tax morale. Using disaggregated data for Russian regions, we also find significant regional differences in tax morale, reflecting the degree of trust different regions have toward Moscow's institutions and policies. Working Paper Number 05-18

In recent years a number of U.S. states have imposed sales-below-cost (SBC) laws directed at motor fuel markets. We use panel data over the 1983-2002 period to evaluate the effects of newly imposed motor fuel SBC laws on retail and wholesale gasoline prices, their mark-up, and the structure of motor fuel markets. A unique feature of our analysis is that we utilize transitions in those states that adopted new SBC legislation to evaluate the effects of the laws. Perhaps surprisingly, we find that gasoline prices are about one cent lower five years after the law is imposed. We also find that total number of gasoline outlets is greater in the presence of the law.

Taxpayer audits are thought to have a direct deterrent effect on the individuals actually audited. In addition, audits are believed to have an indirect deterrent effect on individuals not audited as these individuals learn (or are told) about the audits of other taxpayers. However, the effects on compliance of the ways in which taxpayers learn about - and communicate among themselves - audit rates are not known. In this study, we use laboratory experiments to examine the effects of three types of information and communication on compliance. In all sessions, each subject knows the probability of audit and the results of their own audit (if any). In our base case session, each subject knows only the result of his or her audit, and subjects receive no information about audit results of other subjects. In a second treatment (termed "official" communication), subjects are also told by the experimenter the actual number of audits conducted during a period. In a third treatment (or "unofficial" communication), subjects are offered the opportunity to send a "message" to the other participants about their audit experience. Our preliminary results indicate that "unofficial" communication has a strong indirect effect that increases compliance, but that "official" communication may not encourage voluntary compliance.

In this paper we determine how tax law and income distribution changes have separately contributed to the changes in tax progressivity over time, and also how a specific pre-tax distribution of income affects the equalizing ability of a given tax change. We use information from the Current Population Survey for years that follow immediately after significant tax law changes or after the full enactment of these changes to measure the effect of income taxes on income distribution for selected years over the period 1978 to 1998. We find that, even when account is taken of the induced effect of changes in federal income tax laws on pre-tax income, the individual income tax structure has been less successful in equalizing after-tax income since the 1980's and into the early 1990s. We also find that a given tax law's equalizing effect on the distribution of income is significantly affected by the pre-tax distribution of income.

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In recent years much research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, given both the noted differences across countries in their levels of tax compliance and the marked inability of standard economic models of taxpayer compliance to explain these differences. In the face of these difficulties, many researchers have suggested that the intrinsic motivation for individuals to pay taxes - what is sometimes termed their "tax morale" - differs across countries. However, isolating the reasons for these differences in tax morale is notoriously difficult. In a common approach, studies sometimes referred to as "cultural studies" have often relied upon controlled laboratory experiments conducted in different countries because such experiments can be set up with identical experimental protocols to allow cultural effects to be isolated. In this paper we first analyze a cross-section of individuals in Spain and the United States using the World Values Survey (WVS). In line with previous experiments, our findings indicate a significantly higher tax morale in the United States than in Spain, controlling in a multivariate analysis for additional variables. We then extend our multivariate analysis to include 14 European countries in the estimations. Our results again indicate that the United States has the highest tax morale across all countries, followed by Austria and Switzerland. We also find a strong negative correlation between the size of shadow economy and the degree of tax morale in those countries.

The command-and-control approach to environmental regulation requires that firms install prescribed technologies to meet specified goals. However, environmental regulations change frequently; in addition, the enforcement agency cannot perfectly monitor firm compliance. We examine the impact of uncertainties surrounding the enactment and the enforcement of the Clean Air Act Amendments of 1990 on firm investment in air pollution abatement equipment. We find that our measures of the likelihood of CAAA passage clearly affect a firm's investment in pollution equipment. Enforcement actions also affect a firm's investment, but these effects are weaker and are statistically significant only after enactment.