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On the Redistributive Properties of Presumptive Taxation

  • Alessandro Balestrino
  • Umberto Galmarini

Presumptive taxation, in which an income proxy is used as tax base, has been and is still used today in countries with very diverse situations - developing, transition and developed countries. Usually, this form of taxation is thought of as a revenue-raising device in presence of widespread imperfect tax compliance. We investigate the question of whether presumptive taxation can be used as a redistributive instrument. To this end, we employ an occupational choice model in which an individual can be either an entrepreneur or a worker. We allow for different abilities to dodge taxes across social classes, and consider both the case in which a conventional income tax is in place alongside presumptive taxation and the case in which only presumptive taxation is operating. We argue that a revenue-neutral reform introducing a lump-sum presumptive tax based on occupational choice can improve social welfare, and sometimes even lead to a Pareto-improvement.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1381.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1381
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  1. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer, vol. 8(2), pages 119-128, March.
  2. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  3. Balestrino Alessandro & Galmarini Umberto, 2005. "Presumptive Taxation, Markets and Redistribution," Politica economica - Journal of Economic Policy (PEJEP), Società editrice il Mulino, issue 1, pages 165-186.
  4. Efraim Sadka & Vito Tanzi, 1992. "A Taxon Gross Assets of Enterprises as a Form of Presumptive Taxation," IMF Working Papers 92/16, International Monetary Fund.
  5. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  6. Sijbren Cnossen & Lans Bovenberg, 2001. "Fundamental Tax Reform in The Netherlands," International Tax and Public Finance, Springer, vol. 8(4), pages 471-484, August.
  7. Cowell, F A, 1990. "Tax Sheltering and the Cost of Evasion," Oxford Economic Papers, Oxford University Press, vol. 42(1), pages 231-43, January.
  8. Joel Slemrod & Shlomo Yitzhaki, 1994. "Analyzing the standard deduction as a presumptive tax," International Tax and Public Finance, Springer, vol. 1(1), pages 25-34, February.
  9. Kaplow, Louis, 1996. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of the Income Tax," National Tax Journal, National Tax Association, vol. 49(1), pages 135-50, March.
  10. Joel Slemrod & Shlomo Yitzhaki, 2000. "Tax Avoidance, Evasion, and Administration," NBER Working Papers 7473, National Bureau of Economic Research, Inc.
  11. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 1991. "Optimal linear income taxation in models with occupational choice," Journal of Public Economics, Elsevier, vol. 46(2), pages 133-162, November.
  12. Bennett, John, 1987. "The Second-Best Lump-Sum Taxation of Observable Characteristics," Public Finance = Finances publiques, , vol. 42(2), pages 227-35.
  13. Alessandro Balestrino & Umberto Galmarini, 2003. "Imperfect Tax Compliance and the Optimal Provision of Public Goods," Bulletin of Economic Research, Wiley Blackwell, vol. 55(1), pages 37-52, January.
  14. Slemrod, Joel, 1994. "Fixing the leak in Okun's bucket optimal tax progressivity when avoidance can be controlled," Journal of Public Economics, Elsevier, vol. 55(1), pages 41-51, September.
  15. Louis Kaplow, 1995. "How Tax Complexity and Enforcement Affect the Equity and Efficiency of The Income Tax," NBER Working Papers 5391, National Bureau of Economic Research, Inc.
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