Decomposing Revenue Effects of Tax Evasion, Base Broadening and Tax Rate Reduction
AbstractThis paper proposes a method for evaluating the impact of tax reform on tax revenues and the distribution of the tax burden. The technique consists of decomposing actual revenue relative to potential revenue into components attributable to (i) changes in the tax rate structure (ii) deductions and (iii) tax evasion. If the standard reform package is successful, revenue loss from deductions should be curtailed by base broadening. Furthermore, revenues lost by lowering tax rates should be more than compensated by the induced decline in tax evasion. We use the method to examine tax reforms in India. Our results indicate that, for the reform episode we examine, reform did have the looked for effect but that these gains could not be sustained over time. The magnitude of the gains from the reform were limited and failed to curtail losses from tax evasion to any significant extent. At a disaggregated level, gains to the exchequer from the tax reform have arisen mainly from low income taxpayers without having much impact on upper income group taxpayers. Furthermore, the reforms had little or no impact on deductions taken by business income earners and professionals. This raises questions about the desirability of base-broadening and rate-cum-slab reduction from the perspective of equity.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 199506.
Date of creation: 23 Jul 1998
Date of revision:
Contact details of provider:
Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248
Phone: (732) 932-7482
Fax: (732) 932-7416
Web page: http://snde.rutgers.edu/Rutgers/wp/rutgers-wplist.html
More information through EDIRC
base broadening; decomposition; liberalization; tax evasion; tax reform;
Find related papers by JEL classification:
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- O53 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
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.:
- Feenberg, D.R. & Poterba, J.M., 1992.
"Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns,"
92-16, Massachusetts Institute of Technology (MIT), Department of Economics.
- Daniel R. Feenberg & James M. Poterba, 1993. "Income Inequality and the Incomes of Very High-Income Taxpayers: Evidence from Tax Returns," NBER Chapters, in: Tax Policy and the Economy, Volume 7, pages 145-177 National Bureau of Economic Research, Inc.
- Daniel Feenberg & James Poterba, 1992. "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," NBER Working Papers 4229, National Bureau of Economic Research, Inc.
- 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.
- Sanyal, Amal & Gang, Ira N & Goswami, Omkar, 2000.
" Corruption, Tax Evasion and the Laffer Curve,"
Springer, vol. 105(1-2), pages 61-78, October.
- Arindam Das-Gupta & Radhika Lahiri & Dilip Mookherjee, 1995.
"Income Tax Compliance in India: An Empirical Analysis,"
Boston University - Institute for Economic Development
57, Boston University, Institute for Economic Development.
- Das-Gupta, Arindam & Lahiri, Radhika & Mookherjee, Dilip, 1995. "Income tax compliance in India: An empirical analysis," World Development, Elsevier, vol. 23(12), pages 2051-2064, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.