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Optimal observability in a linear income tax

Author

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  • Joel Slemrod

    (University of Michigan)

  • Christian Traxler

    (Max Planck Institute for Research on Collective Goods)

Abstract

We study the optimal observability of the tax base within the standard linear income tax problem, where observability is determined by the government’s investment into the accurate measurement of the tax base. We characterize the optimal level of observability and derive a new expression for the optimal progressivity, which – in addition to the standard equity efficiency trade-off – accounts for the limited accuracy of an income tax system.

Suggested Citation

  • Joel Slemrod & Christian Traxler, 2010. "Optimal observability in a linear income tax," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2010_04, Max Planck Institute for Research on Collective Goods.
    • Handle: RePEc:mpg:wpaper:2010_04
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    References listed on IDEAS

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    Cited by:

    1. Wladislaw Mill & Cornelius Schneider, 2023. "The Bright Side of Tax Evasion," CESifo Working Paper Series 10615, CESifo.
    2. Traxler, Christian, 2012. "Majority voting and the welfare implications of tax avoidance," Journal of Public Economics, Elsevier, vol. 96(1), pages 1-9.
    3. Gauthier, Stéphane & Laroque, Guy, 2014. "On the value of randomization," Journal of Economic Theory, Elsevier, vol. 151(C), pages 493-507.
    4. Martin Besfamille & Pablo Olmos, 2010. "Inspectors or Google Earth? Optimal fiscal policies under uncertain detection of evaders," Department of Economics Working Papers 2010-09, Universidad Torcuato Di Tella.
    5. Mirco Tonin, 2014. "Reporting import tariffs (and other taxes)," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(1), pages 153-173, February.

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    More about this item

    Keywords

    optimal linear income taxation; observability; tax enforcement;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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