Informal Sector and Taxation
AbstractIn this paper, we present a model of tax evasion in the presence of imperfect auditing. We show that there is a clear link between the degree of observability associated with a given taxpayer or activity and that taxpayer’s optimal declaration strategy with respect to fiscal agency. We also show that the degree of observability is critical in determining the optimal policies to be followed by the fiscal authorities. Our imperfect monitoring approach provides a new strategy for understanding the informal sector in LDCs, which can be interpreted as that group of economic activities characterized by low observability.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17129.
Date of creation: 02 Aug 2009
Date of revision:
Informal sector; information and observability; tax evasion; taxation;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-09-11 (Accounting & Auditing)
- NEP-ALL-2009-09-11 (All new papers)
- NEP-PBE-2009-09-11 (Public Economics)
- NEP-PUB-2009-09-11 (Public Finance)
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