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Income Tax Evasion and the Penalty Structure

Author

Listed:
  • Rainald Borck

    () (DIW Berlin)

Abstract

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.

Suggested Citation

  • Rainald Borck, 2004. "Income Tax Evasion and the Penalty Structure," Economics Bulletin, AccessEcon, vol. 8(5), pages 1-9.
  • Handle: RePEc:ebl:ecbull:eb-04h20010
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    References listed on IDEAS

    as
    1. Borck, Rainald, 2004. "Stricter enforcement may increase tax evasion," European Journal of Political Economy, Elsevier, vol. 20(3), pages 725-737, September.
    2. Fabrizio Balassone & Philip Jones, 1998. "Tax Evasion and Tax Rates: Properties of a Penalty Structure," Public Finance Review, , vol. 26(3), pages 270-285, May.
    3. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
    4. Laszlo Goerke, 2003. "Tax Evasion and Tax Progressivity," Public Finance Review, , vol. 31(2), pages 189-203, March.
    5. 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.
    6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    7. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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