Essays on Tax Efficiency
Creators: name: Fatehin, Sohani
Publisher: name: Georgia State University
Year: 2017

description: This dissertation addresses questions on tax and efficiency. In particular, the main research question in essay one is: what is the impact of state and local taxes as well as expenditure policies on the level, growth, and ratio of high wage workers in U.S. In particular, this essay tries to identify whether interstate differences in state-local level fiscal policies are the main driving force to attract high wage workers or not. Based on Roback (1982) and Epple-Plat’s (1998) model, a theoretical model in presented in which the relationship appears as ambiguous. Empirically, current population survey (CPS) data is used to find out the impact of tax policies. In CPS data, I define high wage workers as one who has earnings greater than 75 percentile of U.S wage distribution. Additionally, Occupational Employment Statistics (published by Bureau of Labor Statistics) is used in which I characterize high wage workers as one who has wages greater than 75 percentiles of all workers in each occupation in the U.S. I include total number of high wage workers, growth of high wage workers, and ratio of high wage to total number of workers in the analysis and examine how fiscal policies affect different forms of high wage workers. The results show that state –local taxes are not the major factors to attract high wage workers although expenditure policies have a positive impact in some cases. I also check the validity of the results by incorporating different time periods, sets of high wage growing states, and various other ways in order to define high wage workers. All the results are consistent with the main findings.
Essay two analyzes the impact of enforcement on tax evasion in U.S. Due to declining budget for enforcement in U.S, the tendency to evade taxes has gone up over the years. Recent data from Internal Revenue Service (IRS) reveals that tax evasion costs the Federal Government $458 billion between 2008 through 2010. This suggests that strong enforcement policies, as well as a rise, in the budget for enforcement are needed in U.S. I use original Allingham-Sandmo (1972) model in which they found a positive relationship between audit or enforcement and tax compliance. Using Individual Tax Model Data File for 2008 and annual state level data from 1980 to 2014, this paper finds that enforcement has a significant impact on tax compliance. There is a possibility that individuals may respond differently at various levels of income. Here I provide evidence that individual’s responses vary at different stages of income. Furthermore, state level annual data indicates that higher level of enforcement expenditure does decrease the likelihood to avoid taxes.
Essay three uses the same theoretical model to examine the impact of sales tax evasion on macroeconomic indicators for a developing country Pakistan. The performance of Pakistan in terms of tax collection is very poor and the government is trying to minimize the loss from tax evasion by incorporating a VAT type general sales tax. Using a computable general equilibrium model, this essay explores the link between sales tax rate, tax gap in sales tax and enforcement level, evasion, and observe the consequences of the evasion on macroeconomic factors. In particular, we run two simulations in which the base case incorporates sales tax evasion of 25 percent and the modified case includes full compliance of the general sales tax. The outcome indicates an increase in Real GNP growth rate, Tax-GDP ratio, and a reduction in the budget deficit.