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How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax

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  • Louis Kaplow
Abstract
Much criticism of the income tax involves administration: the enormous complexity of the system is responsible for large compliance costs, public and private, and the tax gap is large despite substantial resources devoted to enforcement. The desire for simplification and improved compliance motivates various incremental reforms as well as proposals for fundamental restructuring of the tax system. But evaluation of such changes is difficult because the underlying problems have not been analyzed in terms of the equity and efficiency concerns that animate more familiar assessments of income tax policy. This article provides a framework for a unified analysis, in which the same factors that are used to justify the choice of the tax base and the rate structure are employed to resolve problems involving complexity, compliance costs, and enforcement difficulties.

Suggested Citation

  • Louis Kaplow, 1995. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax," NBER Working Papers 5391, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5391
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    References listed on IDEAS

    as
    1. Kaplow, Louis, 1995. "A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism," National Tax Journal, National Tax Association, vol. 48(4), pages 497-514, December.
    2. repec:bla:scandj:v:89:y:1987:i:2:p:183-92 is not listed on IDEAS
    3. Blumenthal, Marsha & Slemrod, Joel, 1992. "The Compliance Cost of the U.S. Individual Income Tax System: A Second Look After Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(2), pages 185-202, June.
    4. Blumenthal, Marsha & Slemrod, Joel, 1992. "The Compliance Cost of the U.S. Individual Income Tax System: A Second Look After Tax Reform," National Tax Journal, National Tax Association, vol. 45(2), pages 185-202, June.
    5. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
    6. Joel Slemrod & Shlomo Yitzhaki, 1994. "Analyzing the standard deduction as a presumptive tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 1(1), pages 25-34, February.
    7. James Alm & Isabel Sanchez & Ana DE Juan, 1995. "Economic and Noneconomic Factors in Tax Compliance," Kyklos, Wiley Blackwell, vol. 48(1), pages 1-18, February.
    8. Kaplow, Louis, 1995. "A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism," National Tax Journal, National Tax Association;National Tax Journal, vol. 48(4), pages 497-514, December.
    9. repec:bla:scandj:v:93:y:1991:i:1:p:75-88 is not listed on IDEAS
    10. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(2), pages 139-154, June.
    11. Mirrlees, J A, 1990. "Taxing Uncertain Incomes," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 34-45, January.
    12. Kaplow, Louis, 1989. "Horizontal Equity: Measures in Search of a Principle," National Tax Journal, National Tax Association, vol. 42(2), pages 139-54, June.
    13. Yitzhaki, Shlomo, 1979. "A Note on Optimal Taxation and Administrative Costs," American Economic Review, American Economic Association, vol. 69(3), pages 475-480, June.
    14. repec:bla:kyklos:v:48:y:1995:i:1:p:3-18 is not listed on IDEAS
    15. Joel Slemrod & Nikki Sorum, 1984. "The Compliance Cost of the U.S. Individual Income Tax System," NBER Working Papers 1401, National Bureau of Economic Research, Inc.
    16. Louis Kaplow, 1985. "Horizontal Equity: Measures in Search of a Principle," NBER Working Papers 1679, National Bureau of Economic Research, Inc.
    17. Louis Kaplow, 1994. "A Fundamental Objection to Tax Equity Norms: A Call for Utilitarianism," NBER Working Papers 4961, National Bureau of Economic Research, Inc.
    18. Mr. Joel Slemrod & Shlomo Yitzhaki, 1995. "The Costs of Taxation and the Marginal Cost of Funds," IMF Working Papers 1995/083, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:ind:nipfwp:13 is not listed on IDEAS
    2. Dynarski, Susan M. & Scott–Clayton, Judith E., 2006. "The Cost of Complexity in Federal Student Aid: Lessons From Optimal Tax Theory and Behavioral Economics," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(2), pages 319-356, June.
    3. Edgar L. Feige, 2000. "Taxation for the 21st century: the automated payment transaction (APT) tax," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 15(31), pages 474-511.
    4. Susan M. Dynarski & Judith E. Scott-Clayton, 2008. "Complexity and Targeting in Federal Student Aid: A Quantitative Analysis," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 109-150, National Bureau of Economic Research, Inc.
    5. Franz W. Wagner, 2006. "Was bedeutet Steuervereinfachung wirklich?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 7(1), pages 19-33, February.
    6. Evy Crals & Lode Vereeck, 2005. "Taxes, Tradable Rights and Transaction Costs," European Journal of Law and Economics, Springer, vol. 20(2), pages 199-223, September.
    7. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470, Elsevier.
    8. Benno Torgler, 2003. "Tax Morale, Rule-Governed Behaviour and Trust," Constitutional Political Economy, Springer, vol. 14(2), pages 119-140, June.
    9. Franz W. Wagner & Susanne Zeller, 2011. "Deutschland als Weltmeister der Steuerliteratur? Fallstudie einer Legende," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 12(3), pages 303-316, August.
    10. Meng-Yu Liang & C.C. Yang, 2007. "On the Budget-Constrained IRS: Equilibrium and Equilibrium and efficiency," IEAS Working Paper : academic research 07-A002, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    11. Cuccia, Andrew D. & Carnes, Gregory A., 2001. "A closer look at the relation between tax complexity and tax equity perceptions," Journal of Economic Psychology, Elsevier, vol. 22(2), pages 113-140, April.
    12. Louis Kaplow, 2000. "Horizontal Equity: New Measures, Unclear Principles," NBER Working Papers 7649, National Bureau of Economic Research, Inc.
    13. repec:npf:wpaper:13 is not listed on IDEAS
    14. repec:awi:wpaper:0459 is not listed on IDEAS
    15. Das-Gupta, Arindam, 2004. "Economic theory of tax compliance with special reference to tax compliance costs," Working Papers 04/13, National Institute of Public Finance and Policy.
    16. Alessandro Balestrino & Umberto Galmarini, 2005. "On the Redistributive Properties of Presumptive Taxation," CESifo Working Paper Series 1381, CESifo.
    17. Eichfelder, Sebastian & Schorn, Michael, 2009. "Tax compliance costs: a business administration perspective," Discussion Papers 2009/3, Free University Berlin, School of Business & Economics.

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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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