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Mark D. Phillips
I am a Ph.D. candidate in the Department of Economics at the University of Chicago.
Fields of Research: Public Economics, Price Theory, Applied Microeconomics, Labor Economics
Working Papers: Taxpayer Response to Targeted Audits Abstract: U.S. tax compliance appears “too high” to be explained by rational risk-taking incentives when aggregate audit probabilities are considered. However, this paper shows that low underreporting is compatible with low probability levels when the taxpayer faces a realistic audit and detection probability function that depends on his choice of underreporting as well as his distribution of income between third-party reported (i.e. matched) and non-third-party reported (i.e. unmatched) income. U.S. audit data from the 2001 National Research Program reveals taxpayer behavior that is consistent with rational response to the proposed probability function. First, the presence and amount of unmatched income are the primary determinants of underreporting incidence and levels. These findings are consistent with a steep increase in the audit probability function when the taxpayer underreports the entirety of his unmatched income. Second, few taxpayers with unmatched income underreport the entirety of it and those who do tend to have relatively less unmatched income. These findings are consistent with a probability function that is increasing at all levels of underreporting, perhaps reflecting the tax agency's ability to identify and detect more egregious instances of noncompliance. Taxpayers with more unmatched income tend to be wealthier and face higher tax rates; therefore, correlation between underreporting and total income, as well as underreporting and tax rates, is largely spurious. Tax rate appendix here.
Sales Tax Holidays: Positive and Normative Theory
Third-Party Reporting in the Tax Evasion Game
Contact: Email: mdp@uchicago.edu Phone: (302)381-2721
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