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Tax Progressivity and Tax Evasion


  • Laszlo Goerke


More progressive income taxes raise employment in models of imperfectly competitive labour markets. However, this prediction is not robust to modifications of the analytical structure. For example, in an efficiency wage setting, more progressive taxes reduce profits. This induces firms to exit the market such that the positive employment effect can vanish in a framework with a constant profit constraint. In this paper, it is demonstrated for an according model that tax evasion opportunities raise the likelihood of positive employment effects due to higher tax progressivity.

Suggested Citation

  • Laszlo Goerke, 2003. "Tax Progressivity and Tax Evasion," CESifo Working Paper Series 1097, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1097

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    References listed on IDEAS

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    14. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
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    efficiency wages; employment; income tax; tax evasion; tax progressivity;

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