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Estimating the “Tax Gap” at the State Level: The Case of Georgia's Personal Income Tax
Author(s) -
Alm James,
Borders Kyle
Publication year - 2014
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/pbaf.12050
Subject(s) - state income tax , economics , gross income , income tax , demographic economics , personal income , indirect tax , value added tax , tax reform , public economics , labour economics , macroeconomics
Most studies of the so‐called “tax gap” (or the amount of taxes that should be collected but are not) focus on national taxes. This study provides several estimates of the “tax gap” for the State of Georgia's personal income tax. The methods use different estimation strategies for each of the three main components (underreporting of income, underpayment of tax liability, and nonfiling of a tax return), and then sum these separate estimates of the tax gap components to yield a range of estimates of the total tax gap in Georgia. The estimated range of the personal income tax gap is $1.4 billion to $2.9 billion, for a voluntary compliance rate that ranges from 89.8 percent to 80.8 percent. This study also provides some rough but suggestive estimates of the distributional effects of noncompliance, which indicate that noncompliance as a proportion of income may well, be higher in lower income classes.