Evasive Ability and the Efficiency Cost of the Underground Economy
AbstractIn the presence of differing abilities to evade taxes, markets select producers for their evasive skills and their abilities to keep costs of production low. Inefficient firms crowd out efficient firms. If the least efficient firms are the best tax evaders, adverse selection is severe and output comes entirely from the high cost end of the supply curve. Tax revenue may be greater under tax evasion than without evasion if evasive ability allows government to act as a price-discriminating monopolist. When evasive and productive talents are unrelated this result disappears, but the deadweight loss due to adverse selection of firms persists and rivals the size of the traditional triangle deadweight loss.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 31 (1998)
Issue (Month): 5 (November)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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