Income Tax Evasion and the Penalty Structure
In the Allingham-Sandmo (AS) model of tax evasion, fines are paid on evaded income, whereas in the Yitzhaki (Y) model fines are levied on evaded tax. This note compares the two models. In the Y model, evasion is higher and tax revenue lower than in the AS model. If government seeks to maximize expected tax revenue, it would prefer penalties of the AS type if it maximizes expected voter welfare, it should choose Y type penalties. A voting model to determine the penalty structure is also considered.
Volume (Year): 8 (2004)
Issue (Month): 5 ()
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- Fabrizio Balassone & Philip Jones, 1998. "Tax Evasion and Tax Rates: Properties of a Penalty Structure," Public Finance Review, SAGE Publishing, vol. 26(3), pages 270-285, May.
- Laszlo Goerke, 2003. "Tax Evasion and Tax Progressivity," Public Finance Review, SAGE Publishing, vol. 31(2), pages 189-203, March.
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- Koskela, Erkki, 1983. "On the Shape of Tax Schedule, the Probability of Detection, and the Penalty Schemes as Deterrents to Tax Evasion," Public Finance = Finances publiques, , vol. 38(1), pages 70-80.
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