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Crime, Law and Social Change

, Volume 57, Issue 3, pp 265–285 | Cite as

America’s unreported economy: measuring the size, growth and determinants of income tax evasion in the U.S.

  • Richard J. Cebula
  • Edgar L. Feige
Article

Abstract

This study empirically investigates the extent of noncompliance with the tax code and examines the determinants of federal income tax evasion in the U.S. Employing a refined version of Feige’s (Staff Papers, International Monetary Fund 33(4):768–881, 1986, 1989) General Currency Ratio (GCR) model to estimate a time series of unreported income as our measure of tax evasion, we find that 18–23% of total reportable income may not properly be reported to the IRS. This gives rise to a 2009 “tax gap” in the range of $390–$540 billion. As regards the determinants of tax noncompliance, we find that federal income tax evasion is an increasing function of the average effective federal income tax rate, the unemployment rate, the nominal interest rate, and per capita real GDP, and a decreasing function of the IRS audit rate. Despite important refinements of the traditional currency ratio approach for estimating the aggregate size and growth of unreported economies, we conclude that the sensitivity of the results to different benchmarks, imperfect data sources and alternative specifying assumptions precludes obtaining results of sufficient accuracy and reliability to serve as effective policy guides.

Keywords

Internal Revenue Service Noncompliance Rate Time Series Estimate Evasion Behavior Adjust Gross Income 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.Jacksonville UniversityJacksonvilleUSA
  2. 2.University of Wisconsin-MadisonMadisonUSA

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