State Income Tax Amnesties 1: Causes

Creators: Dubin, Jeffrey A.; Graetz, Michael J.; Wilde, Louis L.

Abstract

The purpose of this paper is to analyze empirically for the years 1980-88 the factors which led states with state income taxes to run tax amnesty programs. We find a principal factor to be the level of IRS auditing; in particular, we find that states have tended to "free-ride" on the IRS-if the IRS is active in a state, then that state is less likely to run a tax amnesty program. Indeed, our estimates indicate that had the IRS audit rate remained constant during the 1980-88 period (instead of falling by almost one-half) , then the cumulative probability that an average state would have a tax amnesty by 1988 would have fallen by almost one-half compared to its actual level.

Additional Information

Revised version. Original dated to December 1989. Professor Graetz thanks the National Science Foundation for research support (grant no. SES-870443) as do Professors Dubin and Wilde (grant no. SES-8701027). This analysis was initiated by Mike McDonald as a Caltech Summer Undergraduate Research Fellowship (SURF) project. We thank him for his efforts. We also thank Mike Udell for research assistance. Professor Graetz is currently serving as Deputy Assistant Secretary (Tax Policy) of the Treasury. This article was written before Professor Graetz assumed that office and does not necessarily reflect the views of the Treasury Department. Published as Dubin, Jeffrey A., Michael J. Graetz, and Louis L. Wilde. "State income tax amnesties: Causes." The Quarterly Journal of Economics 107, no. 3 (1992): 1057-1070.

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