Public Finance Review

A survey of 1,329 of the largest corporations m the United States reveals that the average annual cost of compliance with federal and subfederal corporation income taxes is approximately $1.565 million, implying an aggregate annual compliance cost of over $2 billion. As a fraction of revenue raised, these compliance costs are lower than estimates that have been made for the individual income tax. The cost-to-revenue ratio is higher for state corporate tax systems than it is for the federal tax system, presumably reflecting the nonuniformity of state tax systems There is near unanimity among senior corporate tax officers that the Tax Reform Act of 1986 added complexity to the tax system, resulting in a combination of higher compliance costs and less accurate information transmission. They point to, in particular, the alternative minimum tax, inventory capitalization rules, and the taxation of foreign-source income as growing sources of complexity.

Since the seminal work of Ramsey (1927) and especially Diamond and Mirrlees (1971), a large body of literature has striven to identify rules characterizing optimal tax structures. The fundamental limitation of such an approach has been the lack of information necessary to implement the rules derived in the optimal tax literature. This article offers an alternative approach to the optimal tax problem. The authors present a mechanism that induces individuals to honestly reveal the total tax burden they bear under alternative tax structures. Under certain conditcons, the mechanism could conceptually be used to find Ramsey's solution to optimal commodity taxation. The article also illustrates how the revelation approach can be operationalized by experiments designed to test theorems derived m the optimal tax literature.

The article explores the redistribution properties of government provision of private goods when their consumption involves take-up costs in the form of time losses, which vary with the level of public provision. The condition for optimal public provision depends on whether the government can vary the size of the benefit in kind and taxation according to individual characteristics, or it is constrained to provide a uniform benefit and requires that the price of the private market counterpart of the benefit in kind equals the sum of the unit cost of the publicly provided good plus its marginal take-up cost adjusted for efficiency and equity considerations.

Because it is unclear, theoretically, if the compensation of public employees is based on performance, this study empirically examines the various factors underlying tax assessor pay. As neoclassical theory suggests, performance, as measured by assessment uniformity, is found to positively affect tax assessor pay. In particular, a 10% increase in assessment uniformity is shown to result in a 1.7%-2.3% increase in tax assessor pay, ceteris paribus.

With a simple assumption on the cost function, an earlier article shows that an increase in profit tax will increase the joint production. This note provides a complement to that study by considering the case in which the method of endogenous cost allocation is appropriate. The previous result still holds in our framework with some additional assumptions on the demand function.

This note readdresses the issue of monopoly profit tax evasion and its output decisions recently reexamined in this journal by Wang (1990) under the assumption that the probability of detection and the penalty rate increase with the amount of understated profit. The note shows that contrary to Wang's allegation, the separabil ity of the monopolist's output decision from its tax evasion behavior (obtained by Wang and Conant, 1988, under the assumption that the probability of detection and the penalty rate are exogenously fixed) still holds under his more realistic assump tions. Consequently, profit taxes are still neutral with respect to the monopolist's profit-ntaximizing output.