Non-Monetary Sanctions as Tax Enforcement Tools: Evaluating California’s Top 500 Program

Abstract

Many U.S. states and countries around the world use non-monetary sanctions to encourage tax compliance, including public disclosure, license suspension, and withholding of other government-provided benefits or privileges. Little is known about the effectiveness of these programs. Using administrative tax microdata from California’s “Top 500” program, we study whether notices warning of the imminent publication of a taxpayer’s personal information and potential license suspension affect payment and other compliance outcomes, as well as whether these notices affect subsequent reported earnings. Exploiting variation over time in the cutoff balance for program eligibility we find evidence of strong positive compliance responses to the program, with no evidence of an impact on subsequent reported earnings. We also develop estimates of the deadweight loss caused by publication of non-compliers, and conclude that the program generates positive net social welfare. Together, these results suggest that non-monetary sanctions can be efficient tax enforcement tools, at least among the relatively high-income population we study.

Keywords: tax enforcement, compliance, shaming, disclosure, tax collection, nonmonetary sanctions, tax avoidance, state income taxation

JEL Classification: H24, H26, H31, H71