Intergovernmental Cooperation and Tax Enforcement

Ugo Troiano

NBER Working Paper No. 24153
Issued in December 2017, Revised in May 2018
NBER Program(s):Development of the American Economy, Law and Economics, Public Economics, Political Economy

Improving the efficiency of tax collection is important for development and fairness purposes. I study the Audit Exchange Information Agreements, which are agreements between the states and the U.S. federal government to exchange information about income tax audit plans and techniques, signed between the 1950s and the 1970s. Adopting a difference-in-differences identification strategy, I show that the program increased state income tax revenues by about 15 percent. I show that mobility and the reported income do not appear to react to the policy, suggesting that the effects may be linked to higher quality auditing. The effects are stronger in places where there are more civic and social organizations, suggesting that tax compliance is higher when there is more cooperative gathering.

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Document Object Identifier (DOI): 10.3386/w24153

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