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What is the Tax Gap?

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Publication Date: October 2007

Publisher(s): Tax Policy Center

Author(s): Eric Toder

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Tax Policy; Taxes, the Budget, and the Economy; Budget Issues; General Tax Policy

Type: Report


In this paper Toder addresses issues related to measurement of the tax gap?the difference between tax liability under the current Federal tax law and taxes paid. He discusses how the tax gap is defined, reviews the main components of the tax gap, and describes how the IRS estimates it, as well as some of the major methodological issues in and weaknesses of current estimates. Toder concludes with some brief observations on the use and potential misuse of tax gap estimates and how compliance data might lead to better tax law administration.