Optimal Taxation with Costly Enforcement and Evasion
AbstractThis paper analyzes the relationship between optimal taxation -- where the literature considers raising revenue with minimum distortion -- and optimal tax enforcement where much of the literature emphasizes raising revenue at the least cost. A central question concerns the extent to which revenue should be raised through higher tax rates, which distort behavior, or greater enforcement, which distorts behavior because it raises marginal effective tax rates and also entails direct resource costs. It is demonstrated that, under each of several assumptions about evasion and enforcement, some expenditure on enforcement is optimal despite its resource cost, its distortionary effect, and the availability of other revenue sources having no enforcement costs. Rules for optimal tax rates and enforcement expenditures are derived, which also indicate the marginal cost of government funds and optimal enforcement priorities for a tax collection agency
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2996.
Date of creation: Feb 1991
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Other versions of this item:
- Kaplow, Louis, 1990. "Optimal taxation with costly enforcement and evasion," Journal of Public Economics, Elsevier, vol. 43(2), pages 221-236, November.
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- Slemrod, Joel & Yitzhaki, Shlomo, 1987.
" The Optimal Size of a Tax Collection Agency,"
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- Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-78, June.
- Don Fullerton, 1991. "If Labor is Inelastic, Are Taxes Still Distorting?," NBER Working Papers 2810, National Bureau of Economic Research, Inc.
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