The Effects of Changes in State Tax Enforcement on Corporate Income Tax Collections
ABSTRACT: Using a new hand collected database on state department of revenue (DOR) expenditures, this study examines the association between changes in state corporate tax enforcement expenditures and state level tax collections during the 2000 2008 time period. The results, after addressing endogeneity concerns using a changes specification and state fixed effects, suggest a $1 increase (decrease) in current period corporate enforcement is associated with an $8 to $11 increase (decrease) in state tax collections two years into the future. The association appears to be attenuated in states with restrictive tax policies (i.e. unitary/combined reporting and related party add back provisions) suggesting that enforcement and restrictive tax policies could serve as substitutes. JEL Classifications: H26; H71; H72. Data Availability: Enforcement data were hand collected from state revenue department annual reports and by contacting state corporate income tax personnel. All annual reports are publicly available.