Tax Evasion: A Real Option Approach
AbstractA theoretical model of excise tax evasion is developed in this paper. The dynamics of a change in tax policy is derived, under the assumption that consumers benefit from a lower price when entering a "black market". However, entry also impose a sunk cost, which gives rise to asymmetric effects and persistence effects on both aggregate demand and on tax revenues. An increase in the tax rate instantaneously brings more entrants into the black market, whereas a tax cut has no short-run effects on the fraction of the population that has access to the black market.
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Bibliographic InfoPaper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 1999:19.
Length: 26 pages
Date of creation: 01 Nov 1999
Date of revision:
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excise tax; real option; social norm; tax evasion;
Find related papers by JEL classification:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-02-07 (All new papers)
- NEP-PBE-2000-02-07 (Public Economics)
- NEP-PUB-2000-02-07 (Public Finance)
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