Putting TRAC to Work
  Legal and Scholarly
University of Chicago and WHU – Otto Beisheim School of Management
April 2018

Tax Enforcement Externalities and the Banking Sector
By John Gallemore and Martin Jacob

To study the effect of tax authorities on the banking sector, we exploit the fact that in the United States from 1992 to 2000, the IRS employed a district based structure for tax enforcement purposes. We collect district-level corporate tax return audit probabilities, obtained from Syracuse University’s Transactional Records Access Clearinghouse (TRAC). These audit probabilities vary both across IRS districts and within an IRS district across time and size classes. Exploiting this within country variation mitigates many of the endogeneity concerns that come with cross- countries studies, such as country-level tax enforcement being correlated with bank regulation or tax law provisions. Using bank regulatory filings, we are able to isolate banks that have all of their operations (e.g., branches) within a given IRS district. By examining these regionally -focused banks, we restrict our sample to banks whose corporate clients are primarily local businesses, allowing us to identify the IRS audit probabilities that are likely to affect the bank’s existing and potential borrowers.........[Citing TRAC data and reports].

Transactional Records Access Clearinghouse, Syracuse University
Copyright 2018
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