Do High Tax and Tax Evasion go Hand in Hand? The Non-Linear Case
AbstractThis paper fully investigates how a tax rate change can affect tax evasion, under the expected utility theory hypothesis. We generalize the Allingham-Sandmo benchmark model of tax evasion, using very general non-linear specifications for the tax schedule and the fine scheme. We consider both interior and corner solutions in terms of tax evasion. When the fine is imposed on the evaded tax, we examine the robustness of Yitzhaki’s result of a positive relationship between a change in tax rate and undeclared income. When the fine is imposed on the undeclared income, we obtain conditions under which Allingham and Sandmo’s result of a inverse relationship remains valid, and particularly with DARA. The case of an endogenous audit probability is also considered.
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Bibliographic InfoPaper provided by Institut d'economie publique (IDEP), Marseille, France in its series IDEP Working Papers with number 1004.
Length: 17 pages
Date of creation: Jul 2010
Date of revision: Jul 2010
Tax evasion; Non-linearity; Expected utility theory;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ACC-2010-07-24 (Accounting & Auditing)
- NEP-ALL-2010-07-24 (All new papers)
- NEP-PBE-2010-07-24 (Public Economics)
- NEP-PUB-2010-07-24 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ralph C Bayer, 2004.
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- Bayer, Ralph-C., 2006. "A contest with the taxman - the impact of tax rates on tax evasion and wastefully invested resources," European Economic Review, Elsevier, vol. 50(5), pages 1071-1104, July.
- Ralph-C Bayer, 2003. "A Contest with the Taxman: The Impact of Tax Rates on Tax Evasion and Wastefully Invested Resources," School of Economics Working Papers 2003-06, University of Adelaide, School of Economics.
- Ralph-C Bayer, 2004. "A Contest with the Taxman - The Impact of Tax Rates on Tax Evasion and Wastefully Invested Resources," School of Economics Working Papers 2004-11, University of Adelaide, School of Economics.
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5_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
- Pierre‐André Chiappori & Monica Paiella, 2011. "Relative Risk Aversion Is Constant: Evidence From Panel Data," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1021-1052, December.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Amedeo Piolatto & Gwenola Trotin, 2011.
"Optimal tax enforcement under prospect theory,"
2011/29, Institut d'Economia de Barcelona (IEB).
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