Differential Taxation and Tax Evasion by Small Business

This paper examines the compliance pattern of small businesses, using pooled 1985 and 1988 Taxpayer Compliance Measurement Program (TCMP) data. Specifically, we focus on the voluntary reporting compliance of income from proprietorship, farm, and rental real estate activities. We find that differential taxation due to selfemployment taxes (SECA) plays an important role in explaining the observed disparity in voluntary reporting compliance among sources of selfemployment income.