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Income Tax Evasion and the Fear of Ruin

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  • PARKASH CHANDER

Abstract

This paper characterizes the optimal income tax function when the agent is risk averse and the objective of the principal is to maximize a social welfare function. We show that the optimal tax function is generally non-decreasing and concave if the principal's objective is maximin and the agent's utility function satisfies a reasonable condition which we call 'repetitive risk aversion'. It is shown further that in many cases the optimal tax function is similarly concave when the social welfare function is utilitarian. Copyright (c) The London School of Economics and Political Science 2006.

Suggested Citation

  • Parkash Chander, 2007. "Income Tax Evasion and the Fear of Ruin," Economica, London School of Economics and Political Science, vol. 74(294), pages 315-328, May.
  • Handle: RePEc:bla:econom:v:74:y:2007:i:294:p:315-328
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0335.2006.00539.x
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    1. Parkash Chander, 2006. "Repetitive risk aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 29(3), pages 701-711, November.
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    Cited by:

    1. Amedeo Piolatto & Gwenola Trotin, 2011. "Optimal tax enforcement under prospect theory," Working Papers 2011/29, Institut d'Economia de Barcelona (IEB).
    2. Jingyuan Li, 2010. "Fear of Loss and Happiness of Win: Properties and Applications," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 77(4), pages 749-766.
    3. Duccio Gamannossi degl’Innocenti & Matthew D. Rablen, 2017. "Tax avoidance and optimal income tax enforcement," IFS Working Papers W17/08, Institute for Fiscal Studies.
    4. Maurizio Caserta & Francesco Reito, 2015. "Minimum taxation as a luxury good," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(3), pages 301-310, December.

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