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Tax evasion and intertemporal choice

  • Partha Sengupta
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    It has often been argued that the misreporting of regular wage income is limited by third-party withholding and reporting requirements. However, income arising from savings investment is often not subject to such withholding requirements. This paper uses a simple dynamic model to examine the problem of tax evasion of investment income. Assuming that individuals can misreport investment income but not wage income, it is shown that alterations in the audit rate and penalty rates affect an individual's saving (or investment) decisions. This suggests that parameters traditionally used to control tax evasion impact the aggregate output of an economy and the rate of economic growth. Copyright International Atlantic Economic Society 1998

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    File URL: http://hdl.handle.net/10.1007/BF02299454
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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 26 (1998)
    Issue (Month): 4 (December)
    Pages: 420-430

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    Handle: RePEc:kap:atlecj:v:26:y:1998:i:4:p:420-430
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    1. Yaniv, Gideon, 1988. "Withholding and non-withheld tax evasion," Journal of Public Economics, Elsevier, vol. 35(2), pages 183-204, March.
    2. Marrelli, Massimo, 1984. "On indirect tax evasion," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 181-196, November.
    3. 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.
    4. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
    5. Marrelli, M. & Martina, R., 1988. "Tax evasion and strategic behaviour of the firms," Journal of Public Economics, Elsevier, vol. 37(1), pages 55-69, October.
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