Liberals, Conservatives and Your Tax Return: Partisan Politics and the Enforcement Activities of the IRS
University of Chicago - Department of Economics
November 15, 2004
This paper examines whether partisan politics influence the proportion of income tax returns audited by the IRS. I find that under Democratic presidencies the audit rate of income tax returns is higher than under Republican presidencies even after the inclusion of various political and economic controls. This difference is not constant across types of returns since during Democratic presidencies the IRS tends to audit fewer individual returns and more corporate returns than during Republican presidencies. Within the individual returns class, I find that under Democratic presidencies non-business returns are audited less frequently than business returns. Binding term limits do not affect these findings, regardless of partisan affiliation. These results contrast with recent evidence in the political economy literature that suggests that partisan politics affects mainly economic outcomes, such as growth and inflation rates, rather than the choice of policy instruments. Even though the declining trend in the number of income tax audits has been interpreted by the public as an indication that the IRS has become more tolerant of tax evasion, the results of this paper suggest that parties may be in fact resorting to more subtle redistributive policies, such as the likelihood of an audit, to favor their constituency.
Keywords: Political cycles, audit rates
JEL Classification: H24, H25, H22
Date posted: November 22, 2004