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The Optimality of Punishing Only the Innocent: The Case of Tax Evasion

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Author Info

  • Robin Boadway
  • Motohiro Sato

Abstract

We study the effectson tax enforcement and tax policy of unintentional complianceerrors by taxpayers and administrative errors by tax auditors.The government can impose both penalties for misreporting andrewards for honest reporting. Maximal sanctions will not be appliedbecause errors are possible, so evasion cannot be eliminatedcostlessly. Under optimal policy intentional evasion can be deterred,but innocent tax evaders must be penalized whether they haveunintentionally evaded or have been mistakenly convicted. Thisdeters intentional evasion, but limits redistribution. Withoutrewards for honest reporting, the revelation principle need notapply, so intentional evasion can occur. Copyright Kluwer Academic Publishers 2000

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Bibliographic Info

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

Volume (Year): 7 (2000)
Issue (Month): 6 (December)
Pages: 641-664

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Handle: RePEc:kap:itaxpf:v:7:y:2000:i:6:p:641-664

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

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Keywords: tax evasion; compliance errors; administrative errors;

References

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  1. Boadway, Robin & Keen, Michael, 1998. "Evasion and Time Consistency in the Taxation of Capital Income," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 461-76, May.
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  7. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers, Queen's University, Department of Economics 637, Queen's University, Department of Economics.
  8. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1997. " Tax Enforcement Problems," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 61-72, March.
  9. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February.
  10. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
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  12. 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.
  13. Kaplow, Louis & Shavell, Steven, 1994. "Accuracy in the Determination of Liability," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 1-15, April.
  14. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  15. Gordon, James P. P., 1989. "Individual morality and reputation costs as deterrents to tax evasion," European Economic Review, Elsevier, vol. 33(4), pages 797-805, April.
  16. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  17. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, December.
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Citations

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Cited by:
  1. 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.
  2. Agnar Sandmo, 2012. "An evasive topic: theorizing about the hidden economy," International Tax and Public Finance, Springer, Springer, vol. 19(1), pages 5-24, February.
  3. Kai A. Konrad & Salmai Qari, 2012. "The Last Refuge of a Scoundrel? Patriotism and Tax Compliance," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 79(315), pages 516-533, 07.
  4. Frank A Cowell, 2003. "Sticks and Carrots," STICERD - Distributional Analysis Research Programme Papers, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE 68, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  5. Philip Curry & Steeve Mongrain, . "What You Don't See Can't Hurt You: An Economic Analysis of," American Law & Economics Association Annual Meetings, American Law & Economics Association 1062, American Law & Economics Association.
  6. Hashimzade, Nigar & Huang, Zhanyi & Myles, Gareth D., 2010. "Tax fraud by firms and optimal auditing," International Review of Law and Economics, Elsevier, Elsevier, vol. 30(1), pages 10-17, March.
  7. Cécile Bazart & Michael Pickhardt, 2009. "Fighting Income Tax Evasion with Positive Rewards: Experimental Evidence," Working Papers, LAMETA, Universtiy of Montpellier 09-01, LAMETA, Universtiy of Montpellier, revised Jun 2009.
  8. Jordi Caballé & Judith Panadés, 2005. "Cost Uncertainty and Taxpayer Compliance," International Tax and Public Finance, Springer, Springer, vol. 12(3), pages 239-263, May.
  9. Wolfram F. Richter & Robin Boadway, 2001. "Trading Off Tax Distortion and Tax Evasion," CESifo Working Paper Series 505, CESifo Group Munich.
  10. Laszlo Goerke, 2008. "Tax Overpayments, Tax Evasion, and Book-Tax Differences," CESifo Working Paper Series 2212, CESifo Group Munich.
  11. Silvia Platoni & Francesco Timpano, 2013. "Redistribution and Tax Evasion: an Asymmetric Information Approach," DISCE - Quaderni del Dipartimento di Scienze Economiche e Sociali dises1394, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
  12. Stefan Dodds, 2002. "Privacy and Endogenous Monitoring Choice When Private Information is a Public Good," Working Papers, Queen's University, Department of Economics 1010, Queen's University, Department of Economics.
  13. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, Elsevier, vol. 40(C), pages 1-19.
  14. Wolfram F. Richter, 2007. "Geplante Steuerhinterziehung und ihre effiziente Bestrafung," RWI Materialien, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 31, 08.

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