An Empirical Note on Determinants of Income Tax Evasion, 1973-1997

This note empirically investigates the impact of various factors on income tax evasion in the U.S. over the 1973-1997 period. The estimate indicates that income tax evasion is an increasing function of the average effective federal personal income tax rate and the public's dissatisfaction with government and a decreasing function both of penalties imposed by the IRS on unpaid taxes and IRS audit rates. However, the average effective social security tax rate appears not to significantly affect tax evasion. A trend variable that may to some extent crudely reflect the impact of improved IRS income detection technologies over time exhibits a negative and significant coefficient.