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Tax Aversion, Optimal Tax Rates, and Indexation

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  • Roger N. Waud

Abstract

Taking account of the costs of tax evasion and avoidance activity together with the government's costs of tax enforcement it is shown that the optimal point on a stylized Laffer curve is located on the positively sloped region, not at the maximum point of the, curve. The analysis eschews the usual supply-side-type rationale for the Laffer curve and shows that such a curve can arise solely as a consequence of the optimizing tax aversion activity of a utility maximizing economic agent. The analysis further implies that indexation to inflation may be warranted by considerations of economic efficiency.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2643.

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Date of creation: Jul 1988
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Publication status: published as Public Finance, Vol. 43, No. 2, pp. 310-325, (1988).
Handle: RePEc:nbr:nberwo:2643

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  1. Isachsen, Arne Jon & Strom, Steinar, 1980. " The Hidden Economy: The Labor Market and Tax Evasion," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 82(2), pages 304-11.
  2. Christiansen, Vidar, 1980. "Two Comments on Tax Evasion," Empirical Economics, Springer, Springer, vol. 13(3), pages 389-93, June.
  3. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 3(2), pages 201-202, May.
  4. Christiansen, Vidar, 1980. "Two comments on tax evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 13(3), pages 389-393, June.
  5. 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.
  6. Cross, Rodney & Shaw, G K, 1982. "On the Economics of Tax Aversion," Public Finance = Finances publiques, , , vol. 37(1), pages 36-47.
  7. 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.
  8. 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.
  9. Bender, Bruce, 1984. "An Analysis of the Laffer Curve," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 22(3), pages 414-20, July.
  10. Stuart, Charles E, 1981. "Swedish Tax Rates, Labor Supply, and Tax Revenues," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 1020-38, October.
  11. Fullerton, Don, 1982. "On the possibility of an inverse relationship between tax rates and government revenues," Journal of Public Economics, Elsevier, Elsevier, vol. 19(1), pages 3-22, October.
  12. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers, Queen's University, Department of Economics 637, Queen's University, Department of Economics.
  13. Slemrod, Joel B, 1985. "An Empirical Test for Tax Evasion," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 232-38, May.
  14. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 323-338, November.
  15. 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.
  16. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, Elsevier, vol. 2(4), pages 339-346.
  17. Friedland, Nehemiah & Maital, Shlomo & Rutenberg, Aryeh, 1978. "A simulation study of income tax evasion," Journal of Public Economics, Elsevier, Elsevier, vol. 10(1), pages 107-116, August.
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