Paul L. Caron

Friday, November 5, 2021

Does Shaming Pay? Evaluating California's Top 500 Tax Delinquent Publication Program

Chad Angaretis (California Franchise Tax Board), Brian D. Galle (Georgetown; Google Scholar), Paul Organ (Michigan; Google Scholar) & Allen C. Prohofsky (California Franchise Tax Board), Does Shaming Pay? Evaluating California's Top 500 Tax Delinquent Publication Program:

Many U.S. states and countries around the world publicly disclose tax debtors to encourage compliance. Little is known about the effectiveness of these programs. Using administrative tax microdata from California’s “Top 500” disclosure program, we study whether notices of imminent publication affect payment and other compliance outcomes, as well as whether these notices affect subsequent reported earnings. We estimate the direct effect of the letter sent to the 500 highest-balance, publication-eligible taxpayers to be additional revenue of between $2.8 and $7.2 million annually, with no evidence of an impact on subsequent reported earnings. We also estimate an upper bound on the deadweight loss caused by publication of non-compliers, and conclude that the program generates positive net social welfare. Together, these results suggest that delinquent taxpayer disclosure can be an efficient tax enforcement tool, at least among the relatively high-income population we study.

We have examined the economic impact of state disclosure of individual taxpayers with large unpaid tax debts. Households receiving a warning that disclosure is imminent respond with large increases, relative to baseline, in their efforts to reach payment agreements with the California tax authority. Households also pay more, with increases in payment particularly concentrated among those with greatest ability to pay and those with business income. Cost-benefit analysis suggests that, looking only at the most direct effects of the program, it increases social welfare substantially. We also find evidence that a good portion of this gain derives from reduced tax avoidance or evasion.

The California experience therefore suggests that delinquent taxpayer disclosure programs may be a useful component of a regulatory toolkit, particularly when compared to other non-monetary sanctions. The households we have studied are ones where the government has all but exhausted its ordinary collection efforts. That we identify a relatively sizable additional response from the threat of disclosure even from this population suggests that disclosure would likely be quite effective for more-compliant households, especially if such households also attach a higher subjective value to being seen as compliant. Our analysis also suggests some caution, though, in employing delinquency disclosure for households with lifetime incomes considerably lower than those we observe.

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