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Tax Evasion, Risky Laundering, and Optimal Deterrence Policy

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  • Gideon Yaniv
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    Abstract

    This paper extends the Allingham and Sandmo's (1972) model of income tax evasion to take account of laundering opportunities, allowing the taxpayer to determine not only the amount of actual income to declare but also the amount of undeclared income to launder. Laundering, aside of entailing direct costs, is assumed to be an unlawful activity, subject to the risk of detection and punishment. The tax authorities devote separate resource efforts to initial audits which may detect undeclared income that has not been laundered and to in-depth investigation which may detect undeclared income that has been laundered. The paper analyzes the effects of laundering incentives on evasion and derives guidelines for the optimal design of a joint evasion/laundering deterrence policy. Copyright Kluwer Academic Publishers 1999

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    File URL: http://hdl.handle.net/10.1023/A:1008643703122
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    Bibliographic Info

    Article provided by Springer in its journal International Tax and Public Finance.

    Volume (Year): 6 (1999)
    Issue (Month): 1 (February)
    Pages: 27-38

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    Handle: RePEc:kap:itaxpf:v:6:y:1999:i:1:p:27-38

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    Web page: http://www.springerlink.com/link.asp?id=102915

    Related research

    Keywords: Tax Evasion; Money Laundering; Net Worth Method; Optimal Deterrence;

    References

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    1. Weiss, Laurence, 1976. "The Desirability of Cheating Incentives and Randomness in the Optimal Income Tax," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1343-52, December.
    2. Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
    3. Pencavel, John H., 1979. "A note on income tax evasion, labor supply, and nonlinear tax schedules," Journal of Public Economics, Elsevier, vol. 12(1), pages 115-124, August.
    4. Cowell, F A, 1990. "Tax Sheltering and the Cost of Evasion," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 231-43, January.
    5. Cremer, Helmuth & Gahvari, Firouz, 1994. " Tax Evasion, Concealment and the Optimal Linear Income Tax," Scandinavian Journal of Economics, Wiley Blackwell, vol. 96(2), pages 219-39.
    6. Yaniv, Gideon, 1994. "Taxation and Dirty Money Laundering," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 40-51.
    7. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
    8. Joel Slemrod & Shlomo Yitzhaki, 1985. "The Optimal Size of a Tax Collection Agency," NBER Working Papers 1759, National Bureau of Economic Research, Inc.
    9. Reinganum, Jennifer F & Wilde, Louis L, 1988. "A Note on Enforcement Uncertainty and Taxpayer Compliance," The Quarterly Journal of Economics, MIT Press, vol. 103(4), pages 793-98, November.
    10. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, vol. 38(2), pages 137-182, March.
    11. 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.
    12. Kolm, Serge-Christophe, 1973. "A note on optimum tax evasion," Journal of Public Economics, Elsevier, vol. 2(3), pages 265-270, July.
    13. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers 637, Queen's University, Department of Economics.
    14. Das-Gupta, Arindam, 1994. "A Theory of Hard-to-Tax Groups," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 28-39.
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    Cited by:
    1. Ratbek Dzhumashev & Emin Gahramanov, 2010. "A Growth Model with Income Tax Evasion: Some Implications for Australia," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 620-636, December.
    2. Ralph-C Bayer, 2004. "Finding Out Who the Crooks Are - Tax Evasion with Sequential Auditing," School of Economics Working Papers 2004-10, University of Adelaide, School of Economics.
    3. Schwarz, Peter, 2011. "Money launderers and tax havens: Two sides of the same coin?," International Review of Law and Economics, Elsevier, vol. 31(1), pages 37-47, March.
    4. Ratbek Dzhumashev & Emin Gahramanov, 2009. "A Stochastic Growth Model with Income Tax Evasion: Implications for Australia," Economics Series 2009_05, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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