Who participates in tax amnesties? Self-selection of risk-averse taxpayers
AbstractIn 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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Bibliographic InfoPaper provided by Institute of Public Policy and Public Choice - POLIS in its series POLIS Working Papers with number 21.
Length: 38 pages
Date of creation: Oct 2001
Date of revision:
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Web page: http://polis.unipmn.it
tax amnesty; tax evasion; relative risk aversion; self-selection;
Find related papers by JEL classification:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-10-29 (All new papers)
- NEP-EEC-2001-10-29 (European Economics)
- NEP-LAW-2001-10-29 (Law & Economics)
- NEP-PBE-2001-10-29 (Public Economics)
- NEP-PUB-2001-10-29 (Public Finance)
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