Do Budget Deficits Reduce Household Taxpayer Compliance? Preliminary Evidence Using the Feige Data

This study investigates the hypothesis that higher federal budget deficits act to increase the degree of federal personal income tax evasion in the U.S. Using annual data on aggregate personal income tax evasion for the period 1961-1997, 1997 being the most recent year for which all of the needed data are currently available, and allowing for such factors as income tax rates, IRS tax return audit rates, the Vietnam War, and the Watergate scandal, it is found that income tax evasion is an increasing function of the budget deficit. Important policy implications of this finding are provided in the Conclusion