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Income Tax Evasion and the Penalty Structure

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  • Rainald Borck

    ()
    (DIW Berlin)

Abstract

In the Allingham-Sandmo (AS) model of tax evasion, fines are paid on evaded income, whereas in the Yitzhaki (Y) model fines are levied on evaded tax. This note compares the two models. In the Y model, evasion is higher and tax revenue lower than in the AS model. If government seeks to maximize expected tax revenue, it would prefer penalties of the AS type if it maximizes expected voter welfare, it should choose Y type penalties. A voting model to determine the penalty structure is also considered.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 8 (2004)
Issue (Month): 5 ()
Pages: 1-9

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Handle: RePEc:ebl:ecbull:eb-04h20010

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  1. Koskela, Erkki, 1983. "On the Shape of Tax Schedule, the Probability of Detection, and the Penalty Schemes as Deterrents to Tax Evasion," Public Finance = Finances publiques, , vol. 38(1), pages 70-80.
  2. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
  3. Fabrizio Balassone & Philip Jones, 1998. "Tax Evasion and Tax Rates: Properties of a Penalty Structure," Public Finance Review, , vol. 26(3), pages 270-285, May.
  4. repec:att:wimass:9610 is not listed on IDEAS
  5. Laszlo Goerke, 2003. "Tax Evasion and Tax Progressivity," Public Finance Review, , vol. 31(2), pages 189-203, March.
  6. Rainald Borck, 2002. "Stricter Enforcement May Increase Tax Evasion," Discussion Papers of DIW Berlin 297, DIW Berlin, German Institute for Economic Research.
  7. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  8. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
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