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Tax Evasion Dynamics

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Author Info

  • Niepelt, Dirk

    ()
    (Institute for International Economic Studies, Stockholm University)

Abstract

I study the dynamic tax evasion program of a household with many sources of income. Contrary to the previous literature, I assume that the detection risk of tax evasion is uncorrelated across these sources. If detection triggers the repayment of currently and previously evaded taxes, the marginal cost of evasion increases over time and the optimal duration of evasion is positive but finite. With stochastic pre-tax income, the fraction of aggregate taxes evaded remains interior, even if detection triggers duration-independent penalties. The model helps to understand the recent European debate about the cross-border exchange of information about capital income as opposed to taxation at the source. It yields a transparent representation of the revenue and efficiency losses due to tax evasion and highlights various effects of tax policy on evasion.

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File URL: http://su.diva-portal.org/smash/get/diva2:343804/FULLTEXT01
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Bibliographic Info

Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 721.

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Length: 29 pages
Date of creation: 08 Jul 2003
Date of revision:
Publication status: Published in Journal of Public Economics, 2005, pages 1611-1637.
Handle: RePEc:hhs:iiessp:0721

Contact details of provider:
Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/
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Related research

Keywords: Tax evasion; hysteresis; inaction range; optimal taxation; information exchange;

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References

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  1. John Hassler & José Vicente Rodríguez Mora, 2003. "A Positive Theory of Geographic Mobility and Social Insurance," Working Papers 97, Barcelona Graduate School of Economics.
  2. Kjetil Storesletten & Chris Telmer & Amir Yaron, 2007. "Asset Pricing with Idiosyncratic Risk and Overlapping Generations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 519-548, October.
  3. Kjetil Storesletten & Chris Telmer & Amir Yaron, 1997. "Consumption and risk sharing over the life cycle," GSIA Working Papers 228, Carnegie Mellon University, Tepper School of Business.
  4. Hassler, John & Mora, José V Rodríguez & Storesletten, Kjetil & Zilibotti, Fabrizio, 2001. "The Survival of the Welfare State," CEPR Discussion Papers 2905, C.E.P.R. Discussion Papers.
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Cited by:
  1. Assar Lindbeck & Dirk Niepelt, 2005. "Improving the SGP: Taxes and Delegation rather than Fines," CESifo Working Paper Series 1389, CESifo Group Munich.
  2. Jan Hanousek & Filip Palda, 2008. "Tax Evasion Dynamics in the Czech Republic: First Evidence of an Evasional Kuznets Curve," CERGE-EI Working Papers wp360, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  3. Alejandro Esteller-More, 2004. "Tax Evasion in Interrelated Taxes," Public Economics 0401001, EconWPA.

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