Regional Court Influence Over Bureaucratic Policymaking: Courts,Ideological Preferences,and the Internal Revenue Service

Abstract

While there have been numerous studies demonstrating bureaucratic control of administrative and regulatory agencies, many argue that the Internal Revenue Service is an agency out of control, and one not subject to political constraints. However, some recent studies have shown that the IRS is subject to some political control in shifting policy between the often competing concerns of efficiency and fairness. We extend these studies to examine judicial control of the IRS. Examining cross sectional time series data from 1960 until 1988, we use regression with panel corrected standard errors to show that, while efficiency is always very important, the IRS shifts audits between the wealthy and the less affluent in response to the prevailing median ideology of the relevant federal court of appeals. As the median appeals court judge becomes more liberal, the IRS shifts its audits in that region in favor of equity by reducing the audits on the poor and increasing the audits of the more affluent. As the median appeals court judge becomes more conservative, the IRS shifts the audits in that region in favor of greater efficiency by increasing the audits of those in the lower economic strata. Courts provide an additional measure of control of bureaucratic behavior.