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Tax Amnesty Case

In: Business and Management

Submitted By pussymoneyweed34
Words 7146
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0 tax amnesties generate revenue D that the tax authorities would not otherwise collect? Will tax amnesties pro- vide continuing or long-run revenue gains not available from enhanced enforcement alone? And if a change in tax enforce- ment is to occur, in what sense is an am- nesty appropriate in the transition to the new regime? Although twenty-six states have conducted tax amnesty programs since 1982, there has been little analysis of them to date, and almost none based on actual amnesty results.' In this paper we examine individual participation in am- nesties, both from the point of view of what economic analysis would lead us to expect and on the basis of evidence from actual amnesty programs. The empirical analy- sis is based on detailed information gath- ered on a random sample of taxpayers participating in the Michigan amnesty, and on fragmentary evidence we have been
*Michigan State University, East Iiming, MI 48824 able to gather on amnesties in other states. In our view, information about the types of taxpayers (or nontaxpayers) who par- ticipate in amnesties and the circum- stances that lead them to participate can be of considerable use in evaluating the effects of amnesties and for predicting the prospects for a federal tax amnesty from the state results.
Under a tax amnesty, taxpayers are of- fered an opportunity to come forward dur- ing a specified period of time and pay pre-
I
15 unpaid taxes. The carrot viousiy encouraging participation is usually for- giveness of at least some penalties that could have been assessed on the overdue taxes. Typically there is also a stick-the promise of harsher penalties for evasion and stepped-up detection efforts to follow the amnesty. To the extent that evasion is a product of rational decision-making, we argue below that it is difficult to imagine that a tax amnesty can generate substantial revenue in

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