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Who participates in tax amnesties? Self-selection of risk-averse taxpayers

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Author Info

  • Marchese, Carla

    ()

  • Privileggi, Fabio

    ()

Abstract

In this paper we model taxpayer participation in an unanticipated tax amnesty which can be entered by paying a fixed amount. Taxpayers are characterized by a Constant Relative Risk Aversion (CRRA) utility function and differ in relative risk aversion coefficient and in income. With minor changes the same model also describes a FATOTA (Fixed Amount of Taxes or Tax Audit) system. Our results show that amnesties may fail as a self-selective device to fully separate large-scale from small-scale tax evaders and to extract resources from the former. Only taxpayers whose relative risk aversion falls within a given interval participate, while those whose evasion is too small or too large do not enter. The model is used to estimate relative risk aversion and tax evasion of participants in the 1991 and 1994 Italian income tax amnesties.

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File URL: http://polis.unipmn.it/pubbl/RePEc/uca/ucapdv/marchese_privileggi.pdf
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Bibliographic Info

Paper provided by Institute of Public Policy and Public Choice - POLIS in its series POLIS Working Papers with number 21.

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Length: 38 pages
Date of creation: Oct 2001
Date of revision:
Handle: RePEc:uca:ucapdv:21

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Web page: http://polis.unipmn.it

Related research

Keywords: tax amnesty; tax evasion; relative risk aversion; self-selection;

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References

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  1. Marchese, Carla & Privileggi, Fabio, 1999. "Taxpayers Attitudes Toward Risk and Amnesty Participation: Economic Analysis and Evidence for the Italian Case," POLIS Working Papers 6, Institute of Public Policy and Public Choice - POLIS.
  2. Chu, C. Y. Cyrus, 1990. "Plea bargaining with the irs," Journal of Public Economics, Elsevier, vol. 41(3), pages 319-333, April.
  3. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
  4. Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
  5. Dagobert L. Brito & Jonathan H. Hamilton & Steven M. Slutsky & Joseph E. Stiglitz, 1990. "Randomization in Optimal Income Tax Schedules," NBER Working Papers 3289, National Bureau of Economic Research, Inc.
  6. Pestieau, P. & Possen, U. M. & Slutsky, S. M., . "The value of explicit randomization in the tax code," CORE Discussion Papers RP -1300, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Grossman, Gene M & Katz, Michael L, 1983. "Plea Bargaining and Social Welfare," American Economic Review, American Economic Association, vol. 73(4), pages 749-57, September.
  8. Carla Marchese & Alberto Cassone, 2000. "Tax Amnesty as Price-Discriminating Behavior by a Monopolistic Government," European Journal of Law and Economics, Springer, vol. 9(1), pages 21-32, January.
  9. Fisher, Ronald C. & Goddeeris, John H. & Young, James C., 1989. "Participation in Tax Amnesties: The Individual Income Tax," National Tax Journal, National Tax Association, vol. 42(1), pages 15-27, March.
  10. Franzoni, Luigi Alberto, 2000. "Amnesties, Settlements and Optimal Tax Enforcement," Economica, London School of Economics and Political Science, vol. 67(266), pages 153-76, May.
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