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Tax Amnesties In A Dynamic Model of Tax Evasion

Author

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  • Inés Macho‐Stadler
  • Pau Olivella
  • David Pérez‐Castrillo

Abstract

We present a dynamic model of tax evasion, where tax liabilities last for two periods and the probability of an inspection decreases with the sum of taxes evaded this period plus taxes evaded last period. We show that a tax amnesty that pardons more than the evasion penalties (an extensive amnesty) can temporarily improve compliance. Whenever the inspection technology improves, steady state compliance also improves, but the economy takes time to transit from one steady state to the other. We show that an amnesty may accelerate this transit, or even make it instantaneous if the amnesty is extensive enough.

Suggested Citation

  • Inés Macho‐Stadler & Pau Olivella & David Pérez‐Castrillo, 1999. "Tax Amnesties In A Dynamic Model of Tax Evasion," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 1(4), pages 439-463, October.
    • Handle: RePEc:bla:jpbect:v:1:y:1999:i:4:p:439-463
    DOI: 10.1111/1097-3923.00020
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    Cited by:

    1. Nur Sayidah & Sri Suryaningsum & Sri Luna Murdianingrum & Aminullah Assagaf & Hadi Sugiyanto, 2020. "The Justice of Tax Amnesty and Tax Compliance: Empirical Study in Indonesia," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(6), pages 116-128, December.
    2. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    3. Shahryar Bahawal, 2021. "Tax Amnesties in Tax Reform Policy: A Case Study from Pakistan and Lessons for Developing Economies," Asian Journal of Law and Economics, De Gruyter, vol. 12(1), pages 37-71, April.
    4. Justin M. Ross & Neal D. Buckwalter, 2013. "Strategic Tax Planning for State Tax Amnesties," Public Finance Review, , vol. 41(3), pages 275-301, May.
    5. Levaggi, Rosella & Menoncin, Francesco, 2012. "Tax audits, fines and optimal tax evasion in a dynamic context," Economics Letters, Elsevier, vol. 117(1), pages 318-321.
    6. L. A. Franzoni, 1996. "Punishment and Grace: on the Economics of Permanent Amnesties," Working Papers 252, Dipartimento Scienze Economiche, Universita' di Bologna.
    7. Koch, Christian & Müller, Cornelius, 2022. "Tax Amnesties and the Insurance Effect: An Experimental Study," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112991, Verein für Socialpolitik / German Economic Association, revised 2022.

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