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Tax audits, fines and optimal tax evasion in a dynamic context

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  • Levaggi, Rosella
  • Menoncin, Francesco

Abstract

In a dynamic optimisation framework we show that the optimal tax evasion can be either a positive or a negative function of the tax rate according to the form of the fine to be paid when evasion is detected.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ecolet:v:117:y:2012:i:1:p:318-321
    DOI: 10.1016/j.econlet.2012.05.043
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    References listed on IDEAS

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    1. 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.
    2. Dzhumashev, Ratbek & Gahramanov, Emin, 2011. "Comment on "A dynamic portfolio choice model of tax evasion: Comparative statics of tax rates and its implication for economic growth"," Journal of Economic Dynamics and Control, Elsevier, vol. 35(3), pages 253-256, March.
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    5. Lin, Wen-Zhung & Yang, C. C., 2001. "A dynamic portfolio choice model of tax evasion: Comparative statics of tax rates and its implication for economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 25(11), pages 1827-1840, November.
    6. Niepelt, Dirk, 2005. "Timing tax evasion," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1611-1637, September.
    7. Feige, Edgar L. & Cebula, Richard, 2011. "America’s Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S," MPRA Paper 29672, University Library of Munich, Germany.
    8. Basil Dalamagas, 2011. "A Dynamic Approach to Tax Evasion," Public Finance Review, , vol. 39(2), pages 309-326, March.
    9. Macho-Stadler, Ines & Olivella, Pau & Perez-Castrillo, David, 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.
    10. 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.
    11. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
    12. Partha Sengupta, 1998. "Tax evasion and intertemporal choice," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 26(4), pages 420-430, December.
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    Citations

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    Cited by:

    1. Michele Bernasconi & Rosella Levaggi & Francesco Menoncin, 2020. "Dynamic Tax Evasion with Habit Formation in Consumption," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(3), pages 966-992, July.
    2. Rainer Niemann & Mariana Sailer, 2023. "Is analytical tax research alive and kicking? Insights from 2000 until 2022," Journal of Business Economics, Springer, vol. 93(6), pages 1149-1212, August.
    3. Rosella Levaggi & Francesco Menoncin, 2015. "Dynamic Tax Evasion with Audits based on Conspicuous Consumption," Working papers 33, Società Italiana di Economia Pubblica.
    4. Gamannossi degl’Innocenti, Duccio & Rablen, Matthew D., 2020. "Tax evasion on a social network," Journal of Economic Behavior & Organization, Elsevier, vol. 169(C), pages 79-91.
    5. Francesco Menoncin & Andrea Modena & Luca Regis, 2022. "Dynamic Tax Evasion and Capital Misallocation in General Equilibrium," Carlo Alberto Notebooks 679 JEL Classification: E, Collegio Carlo Alberto.
    6. Christos Kotsogiannis & Xavier Mateos-Planas, 2019. "Tax Evasion as Contingent Debt," Discussion Papers 1903, Centre for Macroeconomics (CFM).
    7. Carlos Bethencourt & Lars Kunze, 2019. "Tax evasion, social norms, and economic growth," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 21(2), pages 332-346, April.
    8. Gamannossi degl’Innocenti, Duccio & Levaggi, Rosella & Menoncin, Francesco, 2022. "Tax avoidance and evasion in a dynamic setting," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 443-456.
    9. Dzhumashev Ratbek, 2016. "The Role of Income Uncertainty in the Corruption–Growth Nexus," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 1169-1201, April.
    10. Kotsogiannis, Christos & Mateos-Planas, Xavier, 2019. "Tax evasion as contingent debt," LSE Research Online Documents on Economics 100941, London School of Economics and Political Science, LSE Library.
    11. Levaggi, Rosella & Menoncin, Francesco, 2016. "Optimal dynamic tax evasion: A portfolio approach," Journal of Economic Behavior & Organization, Elsevier, vol. 124(C), pages 115-129.
    12. Rosella Levaggi & Francesco Menoncin, 2016. "Dynamic tax evasion with audits based on visible consumption," Journal of Economics, Springer, vol. 119(2), pages 131-146, October.
    13. Ma, Yong & Jiang, Hao & Xiao, Weilin, 2021. "Tax evasion, audits with memory, and portfolio choice," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 896-909.
    14. Bethencourt, Carlos & Kunze, Lars, 2020. "Social norms and economic growth in a model with labor and capital income tax evasion," Economic Modelling, Elsevier, vol. 86(C), pages 170-182.
    15. Bernasconi, Michele & Levaggi, Rosella & Menoncin, Francesco, 2015. "Tax evasion and uncertainty in a dynamic context," Economics Letters, Elsevier, vol. 126(C), pages 171-175.
    16. Sokolovskyi, Dmytro, 2018. "Game-theoretic model of tax evasion: analysis of agents’ interaction and optimization of tax burden," MPRA Paper 86415, University Library of Munich, Germany.

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    More about this item

    Keywords

    Tax evasion; Dynamic optimisation; Tax rates; Audit process; Optimal dynamic consumption;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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