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Tax Rate Cuts and Tax Compliance-The Laffer Curve Revisited

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  • Tamás K. Papp
  • Elöd Takáts

Abstract

The paper shows how tax rate cuts can increase revenues by improving tax compliance. The intuition is that tax evasion has externalities: tax evaders protect each other, because they tie down limited enforcement capacity. Thus, relatively small tax rate cuts, which decrease incentives to evade taxes, can lead to increased revenues through spillovers - creating Laffer effects. Interestingly, tax rate cuts here imply increasing effective taxes. The model is consistent with what happened in Russia, and may provide basis for further thinking about tax rate cuts in other countries.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/7.

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Length: 6
Date of creation: 01 Jan 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/7

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Keywords: Tax revenues; Taxes;

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References

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  1. Fisman, Raymond & Wei, Shang-Jin, 2001. "Tax Rates and Tax Evasion: Evidence from 'Missing Imports' in China," CEPR Discussion Papers 3089, C.E.P.R. Discussion Papers.
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  10. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
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  14. Sah, R.K., 1990. "Social Osmosis And Patterns Of Crime: A Dynamic Economic Analysis," Papers 609, Yale - Economic Growth Center.
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  16. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484.
  17. Vito Tanzi & Parthasrathi Shome, 1993. "A Primer on Tax Evasion," IMF Working Papers 93/21, International Monetary Fund.
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Cited by:
  1. Cintra, Marcos, 2009. "Bank transactions: pathway to the single tax ideal A modern tax technology;the Brazilian experience with a bank transactions tax (1993-2007)," MPRA Paper 16710, University Library of Munich, Germany.

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