The Theoretical Analysis of Income Tax Evasion Revisited
There exists an important puzzle in the income tax evasion literature, that higher tax rates unambiguously encourage tax compliance (Yitzhaki?s (1974) result). In this paper I show that by simply relaxing the assumption that higher tax rates necessarily translate into higher penalty payments at the initial optimum when caught, it is possible to generate rigorously an important extra disincentive to compliance, which is absent from the previous works. It can also be shown that Yitzhaki's (1974) result is a special case of the present formulation.
Volume (Year): 14 (2009)
Issue (Month): 1 (March)
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- Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
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Discussion Paper Serie A
142, University of Bonn, Germany.
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- Crane, Steven E. & Nourzad, Farrokh, 1990. "Tax Rates and Tax Evasion: Evidence from California Amnesty Data," National Tax Journal, National Tax Association, vol. 43(2), pages 189-99, June.
- Shlomo Yitzhaki, 1987. "On the Excess Burden of Tax Evasion," Public Finance Review, , vol. 15(2), pages 123-137, April.
- Alm, James & Bahl, Roy & Murray, Matthew N., 1993. "Audit selection and income tax underreporting in the tax compliance game," Journal of Development Economics, Elsevier, vol. 42(1), pages 1-33, October.
- Yaniv, Gideon, 1999. "Tax Compliance and Advance Tax Payments: A Prospect Theory Analysis," National Tax Journal, National Tax Association, vol. 52(n. 4), pages 753-64, December.
- Koskela, Erkki, 1983. "A note on progression, penalty schemes and tax evasion," Journal of Public Economics, Elsevier, vol. 22(1), pages 127-133, October.
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