Trading Off Tax Distortion and Tax Evasion
AbstractTax evasion is modeled as a risky activity and integrated into a standard problem of optimal tax design. It is shown that there is a trade off between reducing tax evasion and reducing tax distortion. Thus it is efficient to supplement a broad-based wage tax by a tax on specific consumption if the former is evaded and the latter not. The optimal tax structure can be characterized by an explicit formula.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 505.
Date of creation: 2001
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Tax evasion; risk-taking; optimal taxation;
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