The Political Economy of Tax Enforcement: A Look at the IRS from 1978-2010

Abstract

This paper looks at whether political ideology matters for enforcement of the nation’s tax laws. An analysis of the resources available to the IRS suggests that the party affiliation of the President makes no difference to the overall level of IRS resources. However, there are significant increases in the share of the IRS budget devoted to detecting tax fraud and the number of IRS employees devoted to criminal investigation under Democratic administrations. Audit probabilities for corporations are also significantly higher under Democratic administrations. This increase in audit probability raises the effective tax rate for corporations by about three percent.

Keywords: Tax enforcement, Tax compliance, IRS, Corporate audits

JEL Classification: H25, H26