The Optimal Structure of Commodity Taxation in a Monopoly with Tax Avoidance or Evasion
If tax obligations are met, the balanced-budget substitution of an ad valorem tax on output for a specific tax not only raises a monopolistâ€™s production but also represents a Pareto improvement. However, if tax avoidance or evasion is feasible and the marginal costs of such actions decline with the legal tax burden, a monopolist will respond to a balanced-budget substitution of an ad valorem tax for a specific tax by reducing output, while profits remain constant. Therefore, in the presence of tax avoidance or evasion activities, a move toward specific taxation can represent a Pareto improvement.
Volume (Year): 40 (2012)
Issue (Month): 4 (July)
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