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Do High Tax and Tax Evasion go Hand in Hand? The Non-Linear Case


  • Alain Trannoy

    () (EHESS, Greqam-Idep)

  • Gwenola Trotin

    () (EQUIPPE, Université Charles-de-Gaulle Lille 3)


This paper fully investigates how a tax rate change can affect tax evasion, under the expected utility theory hypothesis. We generalize the Allingham-Sandmo benchmark model of tax evasion, using very general non-linear specifications for the tax schedule and the fine scheme. We consider both interior and corner solutions in terms of tax evasion. When the fine is imposed on the evaded tax, we examine the robustness of Yitzhaki’s result of a positive relationship between a change in tax rate and undeclared income. When the fine is imposed on the undeclared income, we obtain conditions under which Allingham and Sandmo’s result of a inverse relationship remains valid, and particularly with DARA. The case of an endogenous audit probability is also considered.

Suggested Citation

  • Alain Trannoy & Gwenola Trotin, 2010. "Do High Tax and Tax Evasion go Hand in Hand? The Non-Linear Case," IDEP Working Papers 1004, Institut d'economie publique (IDEP), Marseille, France, revised Jul 2010.
  • Handle: RePEc:iep:wpidep:1004

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    References listed on IDEAS

    1. Bayer, Ralph-C., 2006. "A contest with the taxman - the impact of tax rates on tax evasion and wastefully invested resources," European Economic Review, Elsevier, vol. 50(5), pages 1071-1104, July.
    2. Pierre‐André Chiappori & Monica Paiella, 2011. "Relative Risk Aversion Is Constant: Evidence From Panel Data," Journal of the European Economic Association, European Economic Association, vol. 9(6), pages 1021-1052, December.
    3. Panades, Judith, 2001. "Tax evasion and Ricardian equivalence," European Journal of Political Economy, Elsevier, vol. 17(4), pages 799-815, November.
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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Tax Evasion Numbers
      by Ariel Goldring in Free Market Mojo on 2010-08-19 17:24:55


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    Cited by:

    1. Amedeo Piolatto & Gwenola Trotin, 2011. "Optimal tax enforcement under prospect theory," Working Papers 2011/29, Institut d'Economia de Barcelona (IEB).

    More about this item


    Tax evasion; Non-linearity; Expected utility theory;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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