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The political economics of not paying taxes

  • Roine, Jesper

    ()

    (Dept. of Economic Statistics, Stockholm School of Economics)

This paper considers redistributive as well as political consequences of tax avoidance. When investing in tax avoidance is possible, the official tax rate does not necessarily correspond to what individuals actually pay in taxes. This affects both redistributive outcomes as well as individual's political attitudes towards taxation. Depending on the avoidance technology different political equilibria emerge. When the tax avoidance possibilities are limited, the classical conflict between rich and poor is sustained. If the tax avoidance technology is more effective, however, the equilibrium outcome can change to a situation characterized by a coalition of poor and the very richest favoring a higher tax rate. When comparing the model's predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations.

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File URL: http://swopec.hhs.se/hastef/papers/hastef0530.pdf
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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 530.

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Length: 34 pages
Date of creation: 15 Apr 2003
Date of revision:
Handle: RePEc:hhs:hastef:0530
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  1. Torsten Persson & Guido Tabellini, 1997. "Political Economics and Macroeconomic Policy," NBER Working Papers 6329, National Bureau of Economic Research, Inc.
  2. Slemrod, Joel & Yitzhaki, Shlomo, 2002. "Tax avoidance, evasion, and administration," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 3, chapter 22, pages 1423-1470 Elsevier.
  3. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  4. Agell, Jonas & Persson, Mats, 1998. "Tax Arbitrage and Labor Supply," Seminar Papers 647, Stockholm University, Institute for International Economic Studies.
  5. Paul, Gilles Saint & Verdier, Thierry, 1996. "Inequality, redistribution and growth: A challenge to the conventional political economy approach," European Economic Review, Elsevier, vol. 40(3-5), pages 719-728, April.
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  7. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
  8. Lang, Oliver & Nohrba[ss], Karl-Heinz & Stahl, Konrad, 1997. "On income tax avoidance: the case of Germany," Journal of Public Economics, Elsevier, vol. 66(2), pages 327-347, November.
  9. Epple, Dennis & Romano, Richard E., 1996. "Ends against the middle: Determining public service provision when there are private alternatives," Journal of Public Economics, Elsevier, vol. 62(3), pages 297-325, November.
  10. Agell, J & Englund, P & Sodersten, J, 1996. "Tax reform of the Century - the Swedish Experiment," Papers 1996-13, Uppsala - Working Paper Series.
  11. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  12. 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.
  13. Persson, Torsten & Tabellini, Guido, 1994. "Representative democracy and capital taxation," Journal of Public Economics, Elsevier, vol. 55(1), pages 53-70, September.
  14. Roland Benabou, 2000. "Unequal Societies: Income Distribution and the Social Contract," American Economic Review, American Economic Association, vol. 90(1), pages 96-129, March.
  15. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  16. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  17. Roberts, Kevin W. S., 1977. "Voting over income tax schedules," Journal of Public Economics, Elsevier, vol. 8(3), pages 329-340, December.
  18. Mayshar, Joram, 1991. " Taxation with Costly Administration," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(1), pages 75-88.
  19. Gordon, Roger H. & Bo Nielsen, Soren, 1997. "Tax evasion in an open economy:: Value-added vs. income taxation," Journal of Public Economics, Elsevier, vol. 66(2), pages 173-197, November.
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