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A note on the neutrality of profit taxes and tax compliance with imperfect detection

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  • K. L. Glen Ueng

    ()
    (Department of Public Finance, National Chengchi University)

  • Chiaen J. Wu

    ()
    (Department of Public Finance, National Chengchi University)

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    Abstract

    In a tax-evasion model with profit tax, we reexamine and clarify the issues of neutrality and separability with imperfect detection of tax fraud. With this more realistic setting, we show that the profit tax is not necessarily neutral and the separability conclusion may not hold. Furthermore, the property of non-neutrality may coexist with that of separability or inseparability. However, in contrast to the traditional conclusion, raising the audit probability may reduce the tax compliance when the property of inseparability is present.

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    File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I1-P32.pdf
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    Bibliographic Info

    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 29 (2009)
    Issue (Month): 1 ()
    Pages: 312-318

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    Handle: RePEc:ebl:ecbull:eb-08h00009

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    1. Kreutzer, David & Lee, Dwight R., 1988. "Tax Evasion and Monopoly Output Decisions: A Reply," National Tax Journal, National Tax Association, vol. 41(4), pages 583-84, December .
    2. Chang, Juin-jen & Lai, Ching-chong & Yang, C. C., 2000. "Casual police corruption and the economics of crime:: Further results," International Review of Law and Economics, Elsevier, vol. 20(1), pages 35-51, March.
    3. Beck, Paul J. & Jung, Woon-Oh, 1989. "Taxpayer compliance under uncertainty," Journal of Accounting and Public Policy, Elsevier, vol. 8(1), pages 1-27.
    4. Suzanne Scotchmer & Joel Slemrod, 1988. "Randomness in Tax Enforcement," NBER Working Papers 2512, National Bureau of Economic Research, Inc.
    5. Lee, Kangoh, 1998. "Tax Evasion, Monopoly, and Nonneutral Profit Taxes," National Tax Journal, National Tax Association, vol. 51(n. 2), pages 333-38, June Cita.
    6. Marrelli, Massimo, 1984. "On indirect tax evasion," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 181-196, November.
    7. K. L. Glen Ueng & C. C. Yang, 2006. "Tax Evasion and Limited Liability," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(3), pages 453-463, 08.
    8. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
    9. 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.
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