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Itemised deductions: a device to reduce tax evasion

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  • Amedeo Piolatto

    () (Universitat de Barcelona & IEB)

Abstract

With direct incentives and sanctions being the most common instruments to fight tax evasion, the theoretical literature has tended to overlook indirect schemes, such as itemised deductions, in which one agent has an interest in other agents declaring their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that it is possible to increase tax proceeds by choosing a suitable level of itemised deduction, and this, for any level of taxation. Indeed, the cost for the government on the consumers' side is more than compensated for by the extra proceeds generated on the sellers' side.

Suggested Citation

  • Amedeo Piolatto, 2014. "Itemised deductions: a device to reduce tax evasion," Working Papers 2014/9, Institut d'Economia de Barcelona (IEB).
  • Handle: RePEc:ieb:wpaper:2013/6/doc2014-9
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    Cited by:

    1. Daniel Montolio & Amedeo Piolatto, 2011. "Financing public education when altruistic agents have retirement concerns," Working Papers 2011/30, Institut d'Economia de Barcelona (IEB).
    2. Giovanni Immordino & Francesco Flaviano Russo, 2016. "Cashless Payments and Tax Evasion," CSEF Working Papers 445, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

    More about this item

    Keywords

    Tax evasion; itemised deductions; substitute goods; duopoly;

    JEL classification:

    • H00 - Public Economics - - General - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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