Firm-oriented policies, tax cheating and perverse outcomes
AbstractThis paper examines the implications of firm-oriented fiscal policies, namely investment subsidies and tax allowances, in an economy where producers may potentially avoid taxes. Among our results we stress the following. First, although investment subsidies induce increased capital accumulation (a level effect), they promote tax evasion; these subsidies induce firms to increase actual capital accumulation (a level effect), but also produce a reduction in the share of aggregate capital stock deployed in taxed, "official" production (a composition effect). Second, parameters characterizing the tax enforcement system play a major role in explaining tax evasion and firm size. Third, the technology structure matters for determining how to allocate resources between official and unofficial production.
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Bibliographic InfoPaper provided by D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 10_2008.
Date of creation: 31 Aug 2008
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State aid; tax exemptions; investment subsidies; tax evasion; unofficial underground production; investment;
Find related papers by JEL classification:
- E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
This paper has been announced in the following NEP Reports:
- NEP-ACC-2009-05-23 (Accounting & Auditing)
- NEP-ALL-2009-05-23 (All new papers)
- NEP-MAC-2009-05-23 (Macroeconomics)
- NEP-PBE-2009-05-23 (Public Economics)
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