Tax Progressivity, Income Distribution and Tax Non-Compliance
Abstract
This article applies a traditional industrial organization framework to the issue of tax compliance. First, we model the "tax advice" industry where the supplier helps taxpayers reduce their tax liability. Then we exploit the fact that more convex demand function results in lower equilibrium price and higher equilibrium quantity. Finally we uncover the factors determining the convexity of the demand for the tax minimisation industry and hence the equilibrium price and output. In particular, we find that lower pre-tax income inequality as well as a less progressive tax code may cause more tax minimisation activities. Therefore, the reduction of the highest tax rate may fail as a policy directed at improving tax discipline. One way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of penalty and monitoring functions.Download Info
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Paper provided by Department of Economics, University of St. Andrews in its series Discussion Paper Series, Department of Economics with number 0712.Length:
Date of creation: Sep 2007
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Handle: RePEc:san:wpecon:0712
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Keywords: tax compliance; tax administration; inequality; tax progressivity; tax monitoring; penalty function;Other versions of this item:
- Damjanovic, Tatiana & Ulph, David, 2010. "Tax progressivity, income distribution and tax non-compliance," European Economic Review, Elsevier, vol. 54(4), pages 594-607, May.
- Tatiana Damjanovic & David Ulph, 2009. "Tax Progressivity, Income Distribution and Tax Non-Compliance," Working Papers 0928, Oxford University Centre for Business Taxation.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-13 (All new papers)
- NEP-PBE-2007-10-13 (Public Economics)
- NEP-PUB-2007-10-13 (Public Finance)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- David Ulph, 2009. "Avoidance Policies – A New Conceptual Framework," CRIEFF Discussion Papers 0908, Centre for Research into Industry, Enterprise, Finance and the Firm.
- Bach, Stefan & Corneo, Giacomo & Steiner, Viktor, 2012.
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- Estrada, Fernando, 2010.
"Política tributaria y economía fiscal La posición Hayek (1959, 1979) con comentarios de Brenann/Buchanan (1980)
[Fiscal tax policy and economy]," MPRA Paper 20094, University Library of Munich, Germany. - David Ulph, 2009. "Avoidance Policies – A New Conceptual Framework," Working Papers 0922, Oxford University Centre for Business Taxation.
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