Redistribution through the Income Tax: The Vertical and Horizontal Effects of Noncompliance and Tax Evasion

This article uses the unique Taxpayer Compliance Measurement Program (TCMP) micro data to study the equity effects of noncompliance. The authors access 4 years of TCMP data: 1979, 1982, 1985, and 1988. The TCMP data allows the authors to observe income and taxes before and after a tax audit. To generate a range of scalar estimates of the redistributive impact of more complete compliance, the authors employ the family of extended Gini and concentration coefficients. They find that the vertical equity effects of noncompliance are very small or negative; however, there is a considerable amount of horizontal inequity generated by noncompliance, and in this sense more complete auditing of tax returns could improve the fairness of the tax system.