Ghosts in the Income Tax Machinery

Much of the tax compliance literature focuses on taxpayers who choose to underreport their income when they file their tax returns. In this paper, we instead concentrate on those individuals who take the ultimate compliance shortcut of not filing a return at all – a group commonly referred to as “ghosts” by academics, tax administrators, and policy-makers. To learn more about this relatively understudied population, we undertake a detailed analysis of administrative data and Census survey data spanning the period from 2001 through 2013. Our results indicate that 10-12 percent of taxpayers with a US federal filing requirement fail to submit a timely income tax return in any given year, and 6.5-8 percent never file at all. The federal tax gap associated with these ghosts is substantial, amounting to an estimated $37 billion per year. We employ a novel pooled time-series cross-sectional econometric methodology to examine the drivers of late filing and nonfiling behavior. The results establish that filing compliance is influenced by income visibility as well as financial incentives, such as refundable credits, tax rebates, and the monetized filing burden. In addition, we find strong evidence of socio-economic and demographic influences. Our results also reveal substantial persistence in filing behavior. The estimated likelihood of filing a timely return for the current tax year is estimated to be 45 percentage points higher if the taxpayer filed a return for the preceding year. At the same time, we find that one-time financial incentives have only a temporary impact on filing compliance, overturning the prevailing view that, once an individual is brought into the tax system, that individual will continue to file in subsequent years

Taxing hidden wealth: the consequences of U.S. enforcement initiatives on evasive foreign accounts

In 2008, the IRS initiated efforts to curb the use of offshore accounts to evade taxes. This paper uses administrative microdata to examine the impact of enforcement efforts on taxpayers’ reporting of offshore accounts and income. We find that enforcement caused approximately 50,000 individuals to disclose offshore accounts with a combined value of about $100 billion. Most disclosures happened outside offshore voluntary disclosure programs, by individuals who never admitted prior noncompliance. Disclosed accounts were concentrated in countries often characterized as tax havens. Enforcement-driven disclosures increased annual reported capital income by$2-$4 billion, corresponding to$0.6-$1.2 billion in additional tax revenue

Term Structure Forecasts of Long-Term Consumption Growth

Relying on a simple general equilibrium model of the term structure, both nominal yields and real consumption growth rates can be shown to be affine in the unobservable state variables. We can then express real consumption growth rates in terms of nominal yields rather than the unobservable state variables with the coefficients of the resultant forecasting relation being endogenously determined by the term structure model. Using term structure data over the 1985 to 2000 sample period, the empirical evidence is consistent with our model more accurately predicting real consumption growth rates than a regression model based on the term spread