Public policy for reducing tax evasion: implications of the Yule–Simpson paradox

ABSTRACT

The current study exhibits a new implication of the Yule–Simpson paradox with public policy repercussions. We construct Laffer curves of local property tax collection based on aggregated data and group division to residential land uses in Jerusalem. Results indicate that based on aggregated (dis-aggregated) data, the location of owner-occupiers and renters who pay a relatively high rate tariff will be on the upward-sloping (downward-sloping) part of the Laffer curve. Consequently, statistical test outcomes support Laffer’s controversial claim that for the few upper-brackets taxpayers, an efficient collection is associated with tax reduction rather than tax increase.

KEYWORDS:

• Tax evasion
• Yule-Simpson paradox
• Laffer curve

JEL CLASSIFICATION:

• H71
• R51
• R52

Acknowledgments

The authors would like to thank the Jerusalem municipality and Anat Chechik for the provision of project data and other materials, and Yifat Arbel, and the participants of the 2017 Regional Science Association Meeting for helpful comments.

Disclosure statement

No potential conflict of interest was reported by the authors.