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The political economics of not paying taxes

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  • Jesper Roine

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Abstract

This paper considers redistributive as well as political consequences of tax avoidance. When tax avoidance is possible, the official tax rate does not necessarily correspond to what individuals actually pay. This affects both redistributive outcomes as well as political attitudes towards taxation. Depending on the avoidance technology different political equilibria emerge. When the avoidance possibilities are limited, the classical conflict between rich and poor is sustained. If the tax avoidance technology is more effective, however, the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate. Comparing the model predictions with data on income inequality and evidence of avoidance activity, it comes surprisingly close to actual observations. Copyright Springer Science + Business Media, Inc. 2006

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Article provided by Springer in its journal Public Choice.

Volume (Year): 126 (2006)
Issue (Month): 1 (January)
Pages: 107-134

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Handle: RePEc:kap:pubcho:v:126:y:2006:i:1:p:107-134

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Web page: http://www.springerlink.com/link.asp?id=100332

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Citations

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Cited by:
  1. Casamatta, Georges, 2011. "Optimal income taxation with tax avoidance," CEPR Discussion Papers 8608, C.E.P.R. Discussion Papers.
  2. Laszlo Goerke, 2012. "The Optimal Structure of Commodity Taxation in a Monopoly with Tax Avoidance or Evasion," Public Finance Review, , vol. 40(4), pages 519-536, July.
  3. Adam, Antonis & Kammas, Pantelis, 2012. "(Tax evasion) power to the people: does "early democratization" increase the size of the informal sector?," MPRA Paper 43343, University Library of Munich, Germany.
  4. Damjanovic, Tatiana & Ulph, David, 2010. "Tax progressivity, income distribution and tax non-compliance," European Economic Review, Elsevier, vol. 54(4), pages 594-607, May.
  5. Michael Keen & Yitae Kim & Ricardo Varsano, 2008. "The “flat tax(es)”: principles and experience," International Tax and Public Finance, Springer, vol. 15(6), pages 712-751, December.
  6. Axel Dreher & Lars-H. Siemers, 2009. "The nexus between corruption and capital account restrictions," Public Choice, Springer, vol. 140(1), pages 245-265, July.
  7. Persson, Mats & Siven, Claes-Henric, 2006. "The Becker Paradox and Type I vs. Type II Errors in the Economics of Crime," Research Papers in Economics 2006:1, Stockholm University, Department of Economics.
  8. Rainald Borck, 2005. "Voting, Inequality, and Redistribution," Discussion Papers of DIW Berlin 503, DIW Berlin, German Institute for Economic Research.
  9. Rainald Borck, 2003. "Voting on Redistribution with Tax Evasion," Discussion Papers of DIW Berlin 329, DIW Berlin, German Institute for Economic Research.
  10. Bethencourt, Carlos & Kunze, Lars, 2013. "The political economics of redistribution, inequality and tax avoidance," MPRA Paper 51127, University Library of Munich, Germany.
  11. Douhan, Robin & Henrekson, Magnus, 2007. "The Political Economy of Entrepreneurship: An Introduction," Working Paper Series 688, Research Institute of Industrial Economics.
  12. Kammas, Pantelis & Litina, Anastasia & Palivos, Theodore, 2013. "The Quality of Public Education in Unequal Societies: The Role of Tax Institutions," MPRA Paper 52193, University Library of Munich, Germany.
  13. Salvatore Barbaro & Jens Suedekum, 2009. "Voting on income tax exemptions," Public Choice, Springer, vol. 138(1), pages 239-253, January.

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