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Optimal taxes on wealth and consumption in the presence of tax evasion

  • Johann Brunner

    ()

  • Paul Eckerstorfer
  • Susanne Pech

This article incorporates tax evasion into an optimum taxation framework with individuals differing in earning abilities and initial wealth. We find that despite the possibility of its evasion a tax on initial wealth should supplement the optimal nonlinear income tax, given a positive correlation between initial wealth and earning abilities. Further, even if income and initial wealth are taxed optimally, it is still desirable to levy a tax on commodities, though it can be evaded as well. Thus, our result provides a rationale for a comprehensive tax system. Optimal tax rates on commodities differ in general, however for the special case of a uniform evasion technology equal rates are optimal if preferences are homothetic and weakly separable. Copyright Springer-Verlag Wien 2013

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File URL: http://hdl.handle.net/10.1007/s00712-012-0314-4
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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 110 (2013)
Issue (Month): 2 (October)
Pages: 107-124

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Handle: RePEc:kap:jeczfn:v:110:y:2013:i:2:p:107-124
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=108909

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