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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References listed on IDEAS
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- 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.
- Laszlo Goerke, 2003. "Tax Evasion and Tax Progressivity," Public Finance Review, , vol. 31(2), pages 189-203, March.
- 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.
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- Andreoni, J. & Erard, B. & Feinstein, J., 1996.
9610r, Wisconsin Madison - Social Systems.
- 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.
- Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
- Rainald Borck, 2002.
"Stricter Enforcement May Increase Tax Evasion,"
Discussion Papers of DIW Berlin
297, DIW Berlin, German Institute for Economic Research.
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