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Tax evasion and the allocation of capital

  • Fullerton, Don
  • Karayannis, Marios

The efficiency cost of capital misallocations between the corporate sector and the noncorporate sector is typically measured using statutory tax differences. Corporate-source income tax compliance is high because of third party reporting, however, while noncorporate rental income tax compliance is low. Differential evasion thus exacerbates statutory differences and enlarges the efficiency cost. To measure this effect, we build a numerical general equilibrium model where households simultaneously choose portfolios of risky assets and fractions of income to report.

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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 55 (1994)
Issue (Month): 2 (October)
Pages: 257-278

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Handle: RePEc:eee:pubeco:v:55:y:1994:i:2:p:257-278
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  1. Joel Slemrod, 1982. "Tax Effects on the Allocation of Capital Among Sectors and Among Individuals: A Portfolio Approach," NBER Working Papers 0951, National Bureau of Economic Research, Inc.
  2. Fullerton, Don & Mackie, James B. III, 1989. "Economic Efficiency in Recent Tax Reform History: Policy Reversals or Consistent Improvements?," National Tax Journal, National Tax Association, vol. 42(1), pages 1-13, March.
  3. Slemrod, Joel & Yitzhaki, Shlomo, 1987. " The Optimal Size of a Tax Collection Agency," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(2), pages 183-92.
  4. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-91, December.
  5. Don Fullerton & Andrew B. Lyon, 1987. "Tax Neutrality and Intangible Capital," NBER Working Papers 2430, National Bureau of Economic Research, Inc.
  6. Landskroner, Yoram & Muller, Eitan & Swary, Itzhak, 1991. "Tax evasion and financial equilibrium," Journal of Economics and Business, Elsevier, vol. 43(1), pages 25-35, February.
  7. Joel B. Slemrod, 1983. "A General Equilibrium Model of Taxation with Endogenous Financial Behavior," NBER Chapters, in: Behavioral Simulation Methods in Tax Policy Analysis, pages 427-458 National Bureau of Economic Research, Inc.
  8. Yaniv, Gideon, 1990. "Tax evasion under differential taxation : The economics of income source misreporting," Journal of Public Economics, Elsevier, vol. 43(3), pages 327-337, December.
  9. Klepper, Steven & Nagin, Daniel, 1989. "The Anatomy of Tax Evasion," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 1-24, Spring.
  10. Mervyn A. King & Don Fullerton, 1983. "The Taxation of Income from Capital: A Comparative Study of the U.S., U.K., Sweden, and West Germany--The Theoretical Framework--," NBER Working Papers 1058, National Bureau of Economic Research, Inc.
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