Advanced Search
MyIDEAS: Login to save this article or follow this journal

Optimal self-employment income tax enforcement

Contents:

Author Info

  • Bigio, Saki
  • Zilberman, Eduardo

Abstract

Most models of optimal income tax enforcement assume that income is either random or solely remunerates labor, neglecting that auditing strategies may depend on observable inputs. This paper outlines a model to optimally monitor self-employed entrepreneurs when, in addition to reported profits, the tax collection agency also observes the number of workers employed (or any other input variable) at each firm. We show that, by conditioning the monitoring strategy only on labor input, it is optimal for the IRS to audit firms in a way that generates some empirical regularities, like the missing middle. We also show that the optimal direct mechanism can be implemented by an indirect monitoring strategy that is consistent with actual IRS practices. In particular, the IRS calculates inputted income as function of labor. Whenever an entrepreneur reports profits that are lower than inputted income, she is randomly monitored. Finally, we formalize a model of optimal presumption taxation, in which inputted income is the tax base, to compare revenue collection across tax systems.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/pii/S0047272710000769
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 9 ()
Pages: 1021-1035

as in new window
Handle: RePEc:eee:pubeco:v:95:y:2011:i:9:p:1021-1035

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords: Optimal auditing; Tax evasion; Informal sector; Missing middle; Entrepreneurship; Presumptive taxation;

Other versions of this item:

Find related papers by JEL classification:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Eduardo Zilberman, 2011. "Audits or Distortions: The Optimal Scheme to Enforce Self-Employment Income Taxes," Textos para discussão 590, Department of Economics PUC-Rio (Brazil).
  2. Annette Alstadsæter & Martin Jacob, 2013. "The effect of awareness and incentives on tax evasion," Working Papers 1314, Oxford University Centre for Business Taxation.
  3. Laszlo Goerke, 2014. "Income Tax Buyouts and Income Tax Evasion," IAAEU Discussion Papers 201401, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  4. Julio Cesar Leal Ordonez, 2014. "Tax collection, the informal sector, and productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(2), pages 262-286, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:95:y:2011:i:9:p:1021-1035. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.