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The political economics of not paying taxes

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  • Roine, Jesper

    ()
    (Dept. of Economic Statistics, Stockholm School of Economics)

Abstract

This paper considers redistributive as well as political consequences of tax avoidance. When investing in tax avoidance is possible, the official tax rate does not necessarily correspond to what individuals actually pay in taxes. This affects both redistributive outcomes as well as individual's political attitudes towards taxation. Depending on the avoidance technology different political equilibria emerge. When the tax 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 characterized by a coalition of poor and the very richest favoring a higher tax rate. When comparing the model's predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 530.

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Length: 34 pages
Date of creation: 15 Apr 2003
Date of revision:
Handle: RePEc:hhs:hastef:0530

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Keywords: Political equilibrium; Redistribution; Tax avoidance; Non-median voter equilibrium;

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References

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Citations

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Cited by:
  1. Goerke, Laszlo, 2011. "The optimal structure of commodity taxation in a monopoly with tax avoidance or evasion," University of Tuebingen Working Papers in Economics and Finance 8, University of Tuebingen, Faculty of Economics and Social Sciences.
  2. 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.
  3. Rainald Borck, 2003. "Voting on Redistribution with Tax Evasion," Discussion Papers of DIW Berlin 329, DIW Berlin, German Institute for Economic Research.
  4. Bethencourt, Carlos & Kunze, Lars, 2013. "The political economics of redistribution, inequality and tax avoidance," MPRA Paper 51127, University Library of Munich, Germany.
  5. Axel Dreher & Lars-H. Siemers, 2009. "The nexus between corruption and capital account restrictions," Public Choice, Springer, vol. 140(1), pages 245-265, July.
  6. Salvatore Barbaro & Jens Suedekum, 2009. "Voting on income tax exemptions," Public Choice, Springer, vol. 138(1), pages 239-253, January.
  7. Rainald Borck, 2005. "Voting, Inequality, and Redistribution," Discussion Papers of DIW Berlin 503, DIW Berlin, German Institute for Economic Research.
  8. 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.
  9. Damjanovic, Tatiana & Ulph, David, 2010. "Tax progressivity, income distribution and tax non-compliance," European Economic Review, Elsevier, vol. 54(4), pages 594-607, May.
  10. Casamatta, Georges, 2011. "Optimal income taxation with tax avoidance," CEPR Discussion Papers 8608, C.E.P.R. Discussion Papers.
  11. 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.
  12. Douhan, Robin & Henrekson, Magnus, 2007. "The Political Economy of Entrepreneurship: An Introduction," Working Paper Series 688, Research Institute of Industrial Economics.
  13. 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.

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