Advanced Search
MyIDEAS: Login to save this paper or follow this series

Tax Aversion, Deficits and the Tax Rate-Tax Revenue Relationship

Contents:

Author Info

  • Roger N. Waud

Abstract

This paper offers a possible explanation for the existence of continual government budget deficits such as experienced in a number of industrialized countries in recent years. Based on the assumption that higher tax rates cause more intensive tax-aversion behavior (tax avoidance and tax evasion), together with the assumption that the time horizon relevant for political decision makers is shorter than that required for complete private sector response to tax rate change, our analysis suggests why there seems to be an inherent bias toward budget deficits. Because of tax aversion an inverse relationship between tax rates and tax revenues may exist at low levels of the tax rate. Consequently determined attempts to eliminate or reduce deficits can become self-defeating, almost certainly so when there is a structural deficit. Our analysis suggests that if an economy is on the downward sloping portion of a stylized Laffer curve political expedience, uncertainty about the shape of the curve, and a common wisdom that tax rate increases reduce deficits can all conspire to keep the budget trapped in deficit. Finally, in the presence of inflation deficit growth may be less if there is indexation of income tax rates to inflation, contrary to conventional wisdom.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nber.org/papers/w1533.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1533.

as in new window
Length:
Date of creation: Jan 1985
Date of revision:
Publication status: published as Waud, Roger N."Politics, Deficits, and the Laffer Curve." Public Choice, Vol. 47, No. 3, pp. 509-517, (September 1985)."Tax Aversion and the Laffer Curve." From Scottish Journal of Political Economy, Vol. 33, No. 3, (August 1986).
Handle: RePEc:nbr:nberwo:1533

Note: PE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

References

References listed on IDEAS
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.:
as in new window
  1. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago - Center for Study of Economy and State 26, Chicago - Center for Study of Economy and State.
  2. James Tobin, 1981. "The Reagan economic plan--supply-side, budget and inflation," Economic Review, Federal Reserve Bank of San Francisco, issue Fall supp.
  3. Pencavel, John H., 1979. "A note on income tax evasion, labor supply, and nonlinear tax schedules," Journal of Public Economics, Elsevier, vol. 12(1), pages 115-124, August.
  4. Buchanan, James M & Lee, Dwight R, 1982. "Politics, Time, and the Laffer Curve," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(4), pages 816-19, August.
  5. Christiansen, Vidar, 1980. "Two Comments on Tax Evasion," Empirical Economics, Springer, vol. 13(3), pages 389-93, June.
  6. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
  7. McCaleb, Thomas S, 1976. "Tax Evasion and the Differential Taxation of Labor and Capital Income," Public Finance = Finances publiques, , , vol. 31(2), pages 287-94.
  8. Christiansen, Vidar, 1980. "Two comments on tax evasion," Journal of Public Economics, Elsevier, vol. 13(3), pages 389-393, June.
  9. Weiss, Laurence, 1976. "The Desirability of Cheating Incentives and Randomness in the Optimal Income Tax," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(6), pages 1343-52, December.
  10. Cross, Rodney & Shaw, G K, 1982. "On the Economics of Tax Aversion," Public Finance = Finances publiques, , , vol. 37(1), pages 36-47.
  11. Cowell, F A, 1981. "Taxation and Labour Supply with Risky Activities," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 48(192), pages 365-79, November.
  12. Isachsen, Arne Jon & Strom, Steinar, 1980. " The Hidden Economy: The Labor Market and Tax Evasion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(2), pages 304-11.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Alan Reynolds, 1985. "Some International Comparisons of Supply-Side Tax Policy," Cato Journal, Cato Journal, Cato Institute, vol. 5(2), pages 543-569, Fall.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1533. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.