Understanding Multidimensional Tax Systems

37 Pages Posted: 11 Jul 2010 Last revised: 6 Feb 2011

See all articles by Joel B. Slemrod

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business; National Bureau of Economic Research (NBER)

Leslie A. Robinson

Dartmouth College - Accounting; Dartmouth College - Tuck School of Business

Date Written: June 30, 2010

Abstract

Income tax systems are multi-dimensional, and ignoring their non-rate aspects can introduce bias into cross-country empirical estimation of the impact of taxation. We analyze 10 non-rate tax system aspects, codified based on recent OECD reports. We find that a single factor (which we call Dispersed Responsibility), related to the role of taxpayers and third parties in tax collection, can reasonably summarize the cross-country covariation, and offer it as a parsimonious measure of non-rate tax system dimensions for future empirical analysis. We also ascertain that a standard measure of trust in government is positively associated, holding other determinants constant, with greater administrator coverage and administrative assessment, as well as more serious sanctions for non-compliance. Ethnic heterogeneity, individualism, and a history of external conflict also can explain certain aspects of tax systems. We find that countries with greater trust in government score lower on Dispersed Responsibility. Finally, we find that adding a measure of the number of tax authority employees can eliminate the otherwise significant positive estimated coefficient of GDP per capita on the tax level, and attracts a significant positive correlation itself, suggesting that the extent of tax administration and enforcement is part of the story that explains the enduring statistical regularity between tax levels and per capita income.

Keywords: tax administration, tax enforcement, cross-country

JEL Classification: C72, M41

Suggested Citation

Slemrod, Joel B. and Robinson, Leslie, Understanding Multidimensional Tax Systems (June 30, 2010). Tuck School of Business Working Paper No. 2010-81. Available at SSRN: https://ssrn.com/abstract=1638217 or http://dx.doi.org/10.2139/ssrn.1638217

Joel B. Slemrod

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Room R5396
Ann Arbor, MI 48109-1234
United States
734-936-3914 (Phone)
734-763-4032 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Leslie Robinson (Contact Author)

Dartmouth College - Accounting ( email )

100 Tuck Hall
Hanover, NH 03755
United States
603-646-4018 (Phone)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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