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The Distributional Component of the Price of the Tax Avoidance Service

Listed author(s):
  • Damjanovic, Tatiana


    (Dept. of Economics, Stockholm School of Economics)

The traditional avoidance literature undeservedly neglects tax base distribution as a factor affecting the avoidance price, and generally assumed to be equal to the avoidance cost. In reality, avoidance providers are usually either high-skilled specialists or insiders. The strong collusion thus, naturally seems to be an assumption of the behavior of avoidance providers. Within such a framework, income distribution, which forms an avoidance demand together with tax codes, plays a very essential roll for the outcome of both avoidance price and quantity. My article models an economy with a monopolistic avoidance provider and imperfect information, and illustrates possible consequences of tax base changes. The paper examines the relationship between inequality and a government's ability to collect tax revenue, and also considers the possible outcome of a tax base broadening. Furthermore, it provides an additional explanation for the secession decision.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 0454.

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Length: 40 pages
Date of creation: 05 Jul 2001
Date of revision: 03 Dec 2001
Handle: RePEc:hhs:hastef:0454
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