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Tax evasion and deductible expenses

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Author Info
Piolatto, Amedeo

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Abstract

Public finance is strongly affected by tax evasion, which implies that public sector resources are very limited. Most of the analysis on how to fight tax evasion focused on the ways to deter evasion through incentives to people not to evade. This model has a different approach: instead of directly rewarding/punishing agents, it gives incentives to an agent to ensure that some other agents are obliged to declare their revenue. In particular, the idea is to give incentives to consumers (through itemised deductions) to declare their expenditure. This forces sellers to declare their earnings or, at least, it makes it more costly for them to convince buyers to buy on the black market. I show that under few conditions, for a given level of taxation, it is optimal to allow for partial itemised deductions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10136.

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Date of creation: May 2008
Date of revision: Jul 2008
Handle: RePEc:pra:mprapa:10136

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Related research
Keywords: direct taxes; tax evasion; deductions;

Find related papers by JEL classification:
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
H00 - Public Economics - - General - - - General
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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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.:
  1. Davidson, Carl & Martin, Lawrence & Wilson, John Douglas, 2007. "Efficient black markets?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1575-1590, August. [Downloadable!] (restricted)
  2. Kolm, Serge-Christophe, 1973. "A note on optimum tax evasion," Journal of Public Economics, Elsevier, vol. 2(3), pages 265-270, July. [Downloadable!] (restricted)
  3. Fortin, Bernard & Lacroix, Guy & Montmarquette, Claude, 2000. "Are Underground Workers More Likely to be Underground Consumers?," Economic Journal, Royal Economic Society, vol. 110(466), pages 838-60, October. [Downloadable!] (restricted)
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  4. Cowell, Frank A, 1985. "The Economic Analysis of Tax Evasion," Bulletin of Economic Research, Blackwell Publishing, vol. 37(3), pages 163-93, September.
  5. repec:att:wimass:199610 is not listed on IDEAS
  6. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier. [Downloadable!] (restricted)
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  7. Cremer, Helmuth & Gahvari, Firouz, 1993. "Tax evasion and optimal commodity taxation," Journal of Public Economics, Elsevier, vol. 50(2), pages 261-275, February. [Downloadable!] (restricted)
  8. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
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