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Tax Evasion, Concealment and the Optimal Linear Income Tax

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Author Info
Cremer, Helmuth
Gahvari, Firouz

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Abstract

This paper incorporates tax evasion into the analysis of optimal linear income taxation. Tax evaders can influence the probability of being caught, if audited, through expenditures on concealment. It is proved that tax evasion can make a given tax system more as well as less progressive depending on the 'concealment technology.' The paper derives and interprets simple formulas for characterizing the optimal tax rate and audit probability. It also gives sufficient conditions under which tax evasion lowers the optimal tax rate, while showing that an increase in the optimal tax rate is also possible. Copyright 1994 by The editors of the Scandinavian Journal of Economics.

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Publisher Info
Article provided by Blackwell Publishing in its journal Scandinavian Journal of Economics.

Volume (Year): 96 (1994)
Issue (Month): 2 ()
Pages: 219-39
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Handle: RePEc:bla:scandj:v:96:y:1994:i:2:p:219-39

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  1. Das-Gupta, Arindam, 2004. "Economic theory of tax compliance with special reference to tax compliance costs," Working Papers 04/13, National Institute of Public Finance and Policy. [Downloadable!]
  2. Dzhumashev, Ratbek & Gahramanov, Emin, 2008. "Can We Tax the Desire for Tax Evasion?," MPRA Paper 11960, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Martin Besfamille & Cecilia Parlatore Siritto, 2009. "Modernization of Tax Administrations and Optimal Fiscal Policies," Department of Economics Working Papers 2009-07, Universidad Torcuato Di Tella. [Downloadable!]
  4. Eduardo M.R.A. Engel & James R. Hines, Jr., 1999. "Understanding Tax Evasion Dynamics," NBER Working Papers 6903, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Ira N. Gang & Arindam Das-Gupta, 1998. "Value Added Tax Evasion, Auditing and Transactions Matching," Departmental Working Papers 199607, Rutgers University, Department of Economics. [Downloadable!]
  6. Kolm, Ann-Sofie & Nielsen, Søren Bo, 2005. "Under-reporting of Income and Labor Market Performance," Research Papers in Economics 2005:5, Stockholm University, Department of Economics. [Downloadable!]
    Other versions:
  7. Gideon Yaniv, 1999. "Tax Evasion, Risky Laundering, and Optimal Deterrence Policy," International Tax and Public Finance, Springer, vol. 6(1), pages 27-38, February. [Downloadable!] (restricted)
  8. James, Simon & Edwards, Alison, 2008. "Developing Tax Policy in a Complex and Changing World," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(1), pages 35-53, March. [Downloadable!]
  9. Rudiger Ahrend & Carlos Winograd, 2002. "The Political Economy of Imperfect Taxation and Sustainable Privatisation : When do Countries Privatise, and Who Gets the Spoils?," DELTA Working Papers 2002-13, DELTA (Ecole normale supérieure). [Downloadable!]
  10. Joel Slemrod & Wojciech Kopczuk, 2000. "The Optimal Elasticity of Taxable Income," NBER Working Papers 7922, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Marsha Blumenthal & Charles Christian & Joel Slemrod, 1998. "The Determinants of Income Tax Compliance: Evidence from a Controlled Experiment in Minnesota," NBER Working Papers 6575, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Ralph C Bayer & Matthias Sutter, 2004. "The excess burden of tax evasion - An experimental detection- concealment contest," Experimental 0412003, EconWPA. [Downloadable!]
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  13. Monica Keneley, 2004. "In the Service of the Society: Labour Management Practices in the Australian Life Insurance Industry to 1940," Economics Series 2004_19, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  14. Ratbek Dzhumashev & Emin Gahramanov, 2009. "A Stochastic Growth Model with Income Tax Evasion: Implications for Australia," Economics Series 2009_05, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  15. Pirttilä, Jukka, 1999. "Tax Evasion and Economies in Transition: Lessons from Tax Theory," BOFIT Discussion Papers 2/1999, Bank of Finland, Institute for Economies in Transition. [Downloadable!]
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