Taxpayer Responses to the Tax Reform Act of 1986
at the Andrew Young School of Policy Studies

Taxpayer Responses to the Tax Reform Act of 1986 (pdf)

by James Alm and Sally Wallace
September 2002

Keywords: Taxation, Tax Reform Act of 1986, Quantile Regression

This paper examines the effects of the Tax Reform Act of 1986 on the reporting decisions of taxpayers, using microlevel information from the 1984 and 1989 Statistics of Income. Four specific questions are examined. Do the reporting decisions of individuals in response to tax reform differ across the various forms of income that individuals receive and report? Do these responses differ at different points in the distribution of income? Are these estimated responses sensitive to the specific estimation method, especially to methods that treat outliers in different ways? And do these estimated responses depend upon methods that adjust the data for any underlying but non-tax-related changes in income that occurred over this period? Our general conclusion is that tax reform clearly mattered in the reporting decisions of most individuals; that is, taxes matter in individual behavior. However, our results also indicate that taxes matter in different ways for individuals with different income levels, in ways that differ by the types of incomes received by taxpayers, in ways that are sensitive to the estimation approach, and in ways that depend upon data adjustment methods.

Comments and questions regarding this paper may be directed to James Alm at jalm@gsu.edu.