Tax Aversion, Optimal Tax Rates, and Indexation
Taking account of the costs of tax evasion and avoidance activity, together with the government's costs of tax enforcement, it is shown that the optimal point on a stylized Laffer curve is located on the positively sloped region, not at the maximum point of the curve. The analysis eschews the usual supply-side-type rationale for the Laffer curve and shows that such a curve can arise solely as a consequence of the optimizing tax aversion activity of a utility maximizing economic agent. The analysis further implies that indexation to inflation may be warranted by considerations of economic efficiency.
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Volume (Year): 43 (1988)
Issue (Month): 2 ()
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NBER Working Papers
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637, Queen's University, Department of Economics.
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- Bender, Bruce, 1984. "An Analysis of the Laffer Curve," Economic Inquiry, Western Economic Association International, vol. 22(3), pages 414-20, July.
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- Cross, Rodney & Shaw, G K, 1982. "On the Economics of Tax Aversion," Public Finance = Finances publiques, , vol. 37(1), pages 36-47.
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