Redistribution Through the Income Tax: The Vertical and Horizontal Effects of Noncompliance and Tax Evasion

Abstract

This paper uses the unique Taxpayer Compliance Measurement Program (TCMP) micro data to study the equity effects of noncompliance. We access four years of TCMP data, 1979,1982,1985, and 1988. The TCMP data allows us to observe income and taxes before and after a tax audit. In order to generate a range of scalar estimates of the redistributive impact of more complete compliance we employ the family of extended Gini and concentration coefficients. We find that the vertical equity effects are very small of negative; however, there is a considerable amount of horizontal inequity generated by noncompliance and in this sense more complete auditing of tax returns could improve the fairness of the tax system