Ugo Troiano recently published the National Bureau of Economic Research (NBER) working paper entitled, “Intergovernmental Cooperation and Tax Enforcement.” Studying the Audit Exchange Information Agreements, he finds that tax compliance is higher when there is more cooperation between different levels of government. The results also suggest tax compliance is higher when there is more cooperative gathering.
Improving the efficiency of tax collection is important for development and fairness purposes. I study the Audit Exchange Information Agreements, which are agreements between the states and the U.S. federal government to exchange information about income tax audit plans and techniques, signed between the 1950s and the 1970s. Adopting an augmented difference-in-differences identification strategy, I show that the program increased state income tax revenues by about 15 percent. I show that mobility and the reported income do not appear to react to the policy, suggesting that the effects may be linked to higher quality auditing. The effects are stronger in places where there are more civic and social organizations, suggesting that tax compliance is higher when there is more cooperative gathering.