Strategic Tax Planning for State Tax Amnesties: Evidence from Eligibility Period Restrictions
Justin M. Ross
Indiana University - School of Public & Environmental Affairs
Grand Valley State University
June 25, 2012
Forthcoming in Public Finance Review.
Indiana University School of Public & Environmental Affairs Research Paper No. 2011-04-04
Tax amnesty programs have exploded in popularity among cash-strapped states since the beginning of the Great Recession. Though many scholars have been interested in the long-term tax compliance effects after amnesty programs, this paper is the first to consider short-run compliance effects just prior to a known amnesty – a moral hazard effect leading to strategic delinquencies. Evidence of this is detected from year-over-year tax revenue change in quarters just prior to an amnesty program. Regression analysis on pre-amnesty periods for state tax amnesty programs between 1982 and 2011 indicate that states experience higher pre-amnesty revenues when recent delinquents are excluded from amnesty participation. The point estimates from OLS indicated that about 4.3 to 6.4 percent of an average amnesty’s recovery came from strategically delayed payments, whereas IV/2SLS put the range at 12.9 to 16.5 percent.
Number of Pages in PDF File: 40
Keywords: Amnesty, Tax Planning, Tax delinquency
JEL Classification: H7, H3
Date posted: April 25, 2011 ; Last revised: July 31, 2012