Strategic Tax Planning for State Tax Amnesties: Evidence from Eligibility Period Restrictions

40 Pages Posted: 25 Apr 2011 Last revised: 31 Jul 2012

Justin M. Ross

Indiana University - School of Public & Environmental Affairs

Neal Buckwalter

Grand Valley State University

Date Written: June 25, 2012

Abstract

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.

Keywords: Amnesty, Tax Planning, Tax delinquency

JEL Classification: H7, H3

Suggested Citation

Ross, Justin M. and Buckwalter, Neal, Strategic Tax Planning for State Tax Amnesties: Evidence from Eligibility Period Restrictions (June 25, 2012). Forthcoming in Public Finance Review.; Indiana University School of Public & Environmental Affairs Research Paper No. 2011-04-04. Available at SSRN: https://ssrn.com/abstract=1822174 or http://dx.doi.org/10.2139/ssrn.1822174

Justin M. Ross (Contact Author)

Indiana University - School of Public & Environmental Affairs ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Neal Buckwalter

Grand Valley State University ( email )

1 Campus Dr.
Allendale, MI 49401-9403
United States

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