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Tax Evasion Dynamics

  • Niepelt, Dirk

    ()

    (Institute for International Economic Studies, Stockholm University)

I study the dynamic tax evasion program of a household with many sources of income. Contrary to the previous literature, I assume that the detection risk of tax evasion is uncorrelated across these sources. If detection triggers the repayment of currently and previously evaded taxes, the marginal cost of evasion increases over time and the optimal duration of evasion is positive but finite. With stochastic pre-tax income, the fraction of aggregate taxes evaded remains interior, even if detection triggers duration-independent penalties. The model helps to understand the recent European debate about the cross-border exchange of information about capital income as opposed to taxation at the source. It yields a transparent representation of the revenue and efficiency losses due to tax evasion and highlights various effects of tax policy on evasion.

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 721.

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Length: 29 pages
Date of creation: 08 Jul 2003
Date of revision:
Publication status: Published in Journal of Public Economics, 2005, pages 1611-1637.
Handle: RePEc:hhs:iiessp:0721
Contact details of provider: Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Phone: +46-8-162000
Fax: +46-8-161443
Web page: http://www.iies.su.se/

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  1. Kjetil Storesletten & Chris Telmer & Amir Yaron, . "Asset pricing with idiosyncratic risk and overlapping generations," GSIA Working Papers 226, Carnegie Mellon University, Tepper School of Business.
  2. Kjetil Storesletten & Chris Telmer & Amir Yaron, 1997. "Consumption and risk sharing over the life cycle," GSIA Working Papers 228, Carnegie Mellon University, Tepper School of Business.
  3. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "A positive theory of geographical mobility and social insurance," Seminar Papers 705, Stockholm University, Institute for International Economic Studies.
  4. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2003. "The Survival of the Welfare State," American Economic Review, American Economic Association, vol. 93(1), pages 87-112, March.
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