Heard it Through the Grapevine: Direct and Network Effects of a Tax Enforcement Field Experiment
Tax enforcement may affect both the behavior of those directly treated and of some taxpayers not directly treated but linked via a network to those who are treated. A large-scale randomized field experiment enables us to examine both the direct and network effects of letters and in-person visits on withheld income and payroll tax remittances by at-risk firms. Visited firms remit substantially more tax. Their tax preparers’ other clients also remit slightly more tax, while their subsidiaries remit slightly less. Letters have a much smaller direct effect and no network effects, yet may improve compliance at lower cost.
We have benefitted from conversations with Zachary Liscow, Michael Lovenheim, Christian Traxler, and Danny Yagan, and, regarding the data and IRS enforcement processes, with Brian Best, Jeff Butler, Patrick Langetieg, Juan Mendez, Stacy Orlett, and Alex Turk. We also thank Barry Johnson, Michael Weber, and Alicia Miller for facilitating this project through the Joint Statistical Research Program of the Statistics of Income Division of the United States Internal Revenue Service. Boning acknowledges support by the National Science Foundation Graduate Research Fellowship Program under Grant No. DGE 1256260. Slemrod is an IRS employee without pay under an agreement made possible by the Intragovernmental Personnel Act of 1970 (5 U.S.C. 3371-3376). Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the Internal Revenue Service or the National Science Foundation. All results have been reviewed to ensure that no confidential information is disclosed. All data work for this project involving confidential taxpayer information was done at IRS facilities, on IRS computers, by IRS employees, and at no time was confidential taxpayer data ever outside of the IRS computing environment. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
William C. Boning & John Guyton & Ronald Hodge & Joel Slemrod, 2020. "Heard it through the grapevine: The direct and network effects of a tax enforcement field experiment on firms," Journal of Public Economics, vol 190.