Many countries have automatic wage tax withholding systems with tax non-filing options for some taxpayers. We show that this has sizable and potentially unintended implications for effective taxation because taxes are often over-withheld. Low-income taxpayers pay more taxes than they have to because they frequently do not file. Using German administrative tax data, we document that the average non-filer overpays € 119 in one year, equivalent to a 1.2 percentage point increase in the average tax rate. Non-filing acts as a form of "reverse evasion": It weakens the effective tax progressivity by increasing tax rates at the bottom of the income distribution.
No takes yet. Share an insight, caveat, or question.
Hauck et al. (2024) studied this question.
Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context: