Optimal Tax Design and Enforcement with an Informal Sector
AbstractAn optimal commodity tax approach is taken to compare trade taxes and VATs when some commodities are produced informally. Trade taxes apply to all imports and exports, including intermediate goods while the VAT applies only to sales by the formal sector and imports. The VAT can achieve production efficiency within the formal sector, but unlike the trade tax regime, it cannot indirectly tax pure profits. Making the size of the informal sector endogenous in each regime is potentially decisive. The ability of the government to change the size of the informal sector through costly enforcement may also tip the balance in favor of the VAT.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1168.
Length: 41 pages
Date of creation: Jun 2008
Date of revision:
informal sector; optimal taxation; value-added tax; trade taxes;
Other versions of this item:
- Robin Boadway & Motohiro Sato, 2009. "Optimal Tax Design and Enforcement with an Informal Sector," American Economic Journal: Economic Policy, American Economic Association, vol. 1(1), pages 1-27, February.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ACC-2008-06-27 (Accounting & Auditing)
- NEP-ALL-2008-06-27 (All new papers)
- NEP-INT-2008-06-27 (International Trade)
- NEP-PBE-2008-06-27 (Public Economics)
- NEP-PUB-2008-06-27 (Public Finance)
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.:
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