Evasion and Time Consistency in the Taxation of Capital Income
AbstractEvasion and time inconsistency have been prominent concerns in discussions of capital income taxation, both theoretical and applied. This paper establishes a link between them, suggesting a potentially useful role for evasion additional to those previously identified: by committing to relatively lax enforcement, the government may be able to alleviate the welfare loss implied by its inability to commit to the tax rate. The scope for this role proves strikingly wide: it is optimal for the government to facilitate the evasion of the capital income taxes that it chooses to impose whenever the time consistent tax rate exceeds that which would be optimal if the government could commit to it. Copyright 1998 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 39 (1998)
Issue (Month): 2 (May)
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- Robin W. Boadway & Michael Keen, 1993. "Evasion and Time Consistency in the Taxation of Capital Income," Working Papers 890, Queen's University, Department of Economics.
- Robin Boadway & Michael Keen, 1993. "Evasion and time consistency in the taxation of capital income," IFS Working Papers W93/20, Institute for Fiscal Studies.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
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