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Economic and Political Determinants of Tax Amnesties in the U.S. States (EPub)

This paper revisits earlier studies on the determinants of tax amnesties. The novel findings are (i) amnesties are more likely to be declared during fiscal stress periods, and (ii) political factors significantly affect the introduction and timing of amnesties. In particular, the paper empirically disentangles opposite theoretical effects to show that governors perceive amnesties as another revenue source (rather than a tax increase alternative). Finally, supporting evidence shows that by breaking horizontal equity, amnesties might be perceived as unfair: a significant correlation exists between governors who lost their reelection bids and the introduction of a tax amnesty during their election years.

They could therefore blame the governor as being incompetent and not reelect
him/her. In the case where an amnesty is unsuccessful, then the governor's
reputation could also be tarnished by having introduced an unsuccessful
program. On the other hand, a positive and significant effect would arise if
governors think of tax amnesties and tax increases as substitutes. A tax amnesty
program is not a new tax but an administrative scheme to collect past taxes. With
tax increases ahead of ...