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Tax Aversion, Optimal Tax Rates, and Indexation

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  • Waud, Roger N

Abstract

Taking account of the costs of tax evasion and avoidance activity, together with the government's costs of tax enforcement, it is shown that the optimal point on a stylized Laffer curve is located on the positively sloped region, not at the maximum point of the curve. The analysis eschews the usual supply-side-type rationale for the Laffer curve and shows that such a curve can arise solely as a consequence of the optimizing tax aversion activity of a utility maximizing economic agent. The analysis further implies that indexation to inflation may be warranted by considerations of economic efficiency.

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Bibliographic Info

Article provided by in its journal Public Finance = Finances publiques.

Volume (Year): 43 (1988)
Issue (Month): 2 ()
Pages: 310-25

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Handle: RePEc:pfi:pubfin:v:43:y:1988:i:2:p:310-25

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  1. Christiansen, Vidar, 1980. "Two Comments on Tax Evasion," Empirical Economics, Springer, vol. 13(3), pages 389-93, June.
  2. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
  3. Stuart, Charles E, 1981. "Swedish Tax Rates, Labor Supply, and Tax Revenues," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 1020-38, October.
  4. 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.
  5. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers 637, Queen's University, Department of Economics.
  6. Cowell, F A, 1981. "Taxation and Labour Supply with Risky Activities," Economica, London School of Economics and Political Science, vol. 48(192), pages 365-79, November.
  7. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  8. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, vol. 19(1), pages 3-22, October.
  9. Christiansen, Vidar, 1980. "Two comments on tax evasion," Journal of Public Economics, Elsevier, vol. 13(3), pages 389-393, June.
  10. Slemrod, Joel B, 1985. "An Empirical Test for Tax Evasion," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 232-38, May.
  11. Friedland, Nehemiah & Maital, Shlomo & Rutenberg, Aryeh, 1978. "A simulation study of income tax evasion," Journal of Public Economics, Elsevier, vol. 10(1), pages 107-116, August.
  12. Cross, Rodney & Shaw, G K, 1982. "On the Economics of Tax Aversion," Public Finance = Finances publiques, , vol. 37(1), pages 36-47.
  13. 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.
  14. McCaleb, Thomas S, 1976. "Tax Evasion and the Differential Taxation of Labor and Capital Income," Public Finance = Finances publiques, , vol. 31(2), pages 287-94.
  15. Isachsen, Arne Jon & Strom, Steinar, 1980. " The Hidden Economy: The Labor Market and Tax Evasion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(2), pages 304-11.
  16. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
  17. Bender, Bruce, 1984. "An Analysis of the Laffer Curve," Economic Inquiry, Western Economic Association International, vol. 22(3), pages 414-20, July.
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