Thursday, April 2, 2009
Matthew Kahn (UCLA, Department of Economics) presents Understanding Spatial Variation in Tax Sheltering: The Role of Demographics, Ideology and Taxes (with William M. Gentry
(Williams College)) at UCLA today as part of its Tax Policy and Public Finance Colloquium Series moderated by Kirk J. Stark and Eric M. Zolt. Here is the abstract:
Taxpayers shelter income from taxation both through illegal evasion and legal avoidance.
This tax sheltering creates a difference between a household’s actual income and what it reports
to the tax authorities. While tax sheltering is a central concern for designing a tax system, the
private nature of this behavior complicates evaluating the magnitude and determinants of such
behavior. In this paper, we combine zip-code level data on reported income from the Internal
Revenue Service (IRS) and the Census Bureau to examine three types of determinants of tax
sheltering: (1) tax policy variables, including tax rates and the compliance generated third-party
reporting of income; (2) political attitudes towards taxation; and (3) demographics. Our
estimates suggest that higher tax rates increase the amount of tax sheltering; places with more
self-employed people also shelter more income. In terms of political support, our results suggest
that places with voters who are either more conservative or less supportive of tax increases
actually shelter less income. We also find that minorities shelter more income from taxation and
both older and more highly-educated households shelter less income from taxation.