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Itemised deductions: a device to reduce tax evasion

  • Amedeo Piolatto

    (Universidad de Alicante)

Direct incentives and punishments are the most common instruments to fight tax evasion. The theoretical literature disregarded indirect schemes, such as itemised deductions, in which an agent has an interest in that other agents declare their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that, for any level of taxation, it is possible to increase tax proceeds by choosing the proper level of itemised deduction: the cost for the government on the consumers' side is more than compensated by the extra proceeds on the sellers' side.

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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2010-33.

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Length: 24 pages
Date of creation: Nov 2010
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2010-33
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