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Tax Knowledge and Tax Manipulation: A Unifying Model

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  • Ashley C. Craig
  • Joel Slemrod

Abstract

We provide a unified analysis of taxation and taxpayer education when individuals have an incomplete understanding of a complex tax system. The analysis is independent of whether income is earned legitimately, or by avoiding or evading taxes. In this sense, learning about tax minimization strategies (tax manipulation) is similar to learning about the tax code. The government in our model balances a trade-off: A better understanding of the tax system potentially allows taxpayers to optimize more effectively, but also affects government revenue. Optimal taxpayer education and the optimal amount of redistribution can both be characterized ex post by aggregate sufficient statistics that do not require information about how biases or behavioral responses vary across the decision margins.

Suggested Citation

  • Ashley C. Craig & Joel Slemrod, 2022. "Tax Knowledge and Tax Manipulation: A Unifying Model," NBER Working Papers 30151, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30151
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    Cited by:

    1. Philippe Aghion & Ufuk Akcigit & Maxime Gravoueille & Matthieu Lequien & Stefanie Stantcheva, 2023. "Tax simplicity or simplicity of evasion? Evidence from self-employment taxes in France," POID Working Papers 050, Centre for Economic Performance, LSE.
    2. Louis Kaplow, 2022. "Optimal Income Taxation," NBER Working Papers 30199, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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