IDEAS home Printed from https://ideas.repec.org/a/cuf/journl/y2002v3i2p407-431.html
   My bibliography  Save this article

Income Taxation and Tax Evasion in a Finite Economy

Author

Listed:
  • Waly Wane

    () (Development Research Group, World Bank)

Abstract

This paper introduces tax evasion in an optimal income taxation problem. It deals with finite economies. Two different problems are addressed. First, allowing the government to use generalized tax schedules (GTS, income distribution-contingent set of lump sum transfers) `a la Piketty, we show that any first best Pareto optimum can be implemented, by proposing beside the GTS well defined audit strategy and fine function. Second, restricting the government to use classical tax schedules, we show that with the same type of audit strategy and fine function, (only) a subset of the first best Pareto allocations is implementable; moreover, all the agents except the more able evade some income and are not audited.

Suggested Citation

  • Waly Wane, 2002. "Income Taxation and Tax Evasion in a Finite Economy," Annals of Economics and Finance, Society for AEF, vol. 3(2), pages 407-431, November.
  • Handle: RePEc:cuf:journl:y:2002:v:3:i:2:p:407-431
    as

    Download full text from publisher

    File URL: http://www.aeconf.net/Articles/Nov2002/aef030206.pdf
    Download Restriction: no

    File URL: http://down.aefweb.net/AefArticles/aef030206.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kevin Roberts, 1984. "The Theoretical Limits to Redistribution," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 177-195.
    2. Krasa, Stefan & Villamil, Anne P, 1994. "Optimal Multilateral Contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 4(2), pages 167-187, March.
    3. J. A. Mirrlees, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Oxford University Press, vol. 38(2), pages 175-208.
    4. Kim C. Border & Joel Sobel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 525-540.
    5. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
    6. Peter J. Hammond, 1979. "Straightforward Individual Incentive Compatibility in Large Economies," Review of Economic Studies, Oxford University Press, vol. 46(2), pages 263-282.
    7. Cremer, Helmuth & Gahvari, Firouz, 1996. "Tax evasion and the optimum general income tax," Journal of Public Economics, Elsevier, vol. 60(2), pages 235-249, May.
    8. Cremer, Jacques & McLean, Richard P, 1985. "Optimal Selling Strategies under Uncertainty for a Discriminating Monopolist When Demands Are Interdependent," Econometrica, Econometric Society, vol. 53(2), pages 345-361, March.
    9. Guesnerie, Roger & Seade, Jesus, 1982. "Nonlinear pricing in a finite economy," Journal of Public Economics, Elsevier, vol. 17(2), pages 157-179, March.
    10. Berliant, M. & Gouveia, M., 1990. "Incentive Compatible Income Taxation, Individual Revenue Requirements And Welfare," RCER Working Papers 234, University of Rochester - Center for Economic Research (RCER).
    11. Berliant, Marcus & Page, Frank Jr., 1996. "Incentives and income taxation: the implementation of individual revenue requirement functions," Ricerche Economiche, Elsevier, vol. 50(4), pages 389-400, December.
    12. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    13. Piketty Thomas, 1993. "Implementation of First-Best Allocations via Generalized Tax Schedules," Journal of Economic Theory, Elsevier, vol. 61(1), pages 23-41, October.
    14. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-1257, November.
    15. Egbert Dierker & Hans Haller, 1990. "Tax systems and direct mechanisms in large finite economies," Journal of Economics, Springer, vol. 52(2), pages 99-116, June.
    16. Aumann, Robert J & Kurz, Mordecai, 1977. "Power and Taxes," Econometrica, Econometric Society, vol. 45(5), pages 1137-1161, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Income taxation; Tax evasion; Costly State Verificatin; Implementation;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cuf:journl:y:2002:v:3:i:2:p:407-431. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Qiang Gao). General contact details of provider: http://edirc.repec.org/data/emcufcn.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.