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Tax evasion and the allocation of capital

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  • Fullerton, Don
  • Karayannis, Marios

Abstract

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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Suggested Citation

  • Fullerton, Don & Karayannis, Marios, 1994. "Tax evasion and the allocation of capital," Journal of Public Economics, Elsevier, vol. 55(2), pages 257-278, October.
    • Handle: RePEc:eee:pubeco:v:55:y:1994:i:2:p:257-278
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    1. Don Fullerton & Andrew B. Lyon, 1988. "Tax Neutrality and Intangible Capital," NBER Chapters, in: Tax Policy and the Economy: Volume 2, pages 63-88, National Bureau of Economic Research, Inc.
    2. Klepper, Steven & Nagin, Daniel, 1989. "The Anatomy of Tax Evasion," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 1-24, Spring.
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    5. Sandmo, Agnar, 1981. "Income tax evasion, labour supply, and the equity--efficiency tradeoff," Journal of Public Economics, Elsevier, vol. 16(3), pages 265-288, December.
    6. Shlomo Yitzhaki, 1987. "On the Excess Burden of Tax Evasion," Public Finance Review, , vol. 15(2), pages 123-137, April.
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. 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 880-891, December.
    12. 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;National Tax Journal, vol. 42(1), pages 1-13, March.
    13. Robert N. Horn, 1988. "Analysis," Challenge, Taylor & Francis Journals, vol. 31(4), pages 56-58, July.
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    Cited by:

    1. Max Gillman & Michal Kejak, 2014. "Tax Evasion, Human Capital, and Productivity-Induced Tax Rate Reduction," Journal of Human Capital, University of Chicago Press, vol. 8(1), pages 42-79.
    2. Been-Lon Chen, 2003. "Tax Evasion in a Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 381-403, April.
    3. repec:zbw:rwimat:037 is not listed on IDEAS
    4. Oscar Mauricio VALENCIA ARANA, 2010. "Economic Growth and Optimal Income Tax Evasion," EcoMod2004 330600147, EcoMod.
    5. George Economides & Apostolis Philippopoulos & Anastasios Rizos, 2020. "Optimal tax policy under tax evasion," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 339-362, April.
    6. Frank A Cowell, 2003. "Sticks and Carrots," STICERD - Distributional Analysis Research Programme Papers 68, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Wolfram F. Richter, 2007. "Geplante Steuerhinterziehung und ihre effiziente Bestrafung," RWI Materialien, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, pages 31, 08.
    8. Takeo Hori & Noritaka Maebayashi & Keiichi Morimoto, 2018. "Tax Evasion and Optimal Corporate Income Tax Rates in a Growing Economy," Discussion Papers 41, Meisei University, School of Economics.
    9. Richter, Wolfram F., 2007. "Geplante Steuerhinterziehung und ihre effiziente Bestrafung," RWI Materialien 37, RWI - Leibniz-Institut für Wirtschaftsforschung.

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    More about this item

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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