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Evasion and Time Consistency in the Taxation of Capital Income

Author

Listed:
  • Robin W. Boadway
  • Michael Keen

Abstract

Evasion and time inconsistency have been prominent concerns in recent discussions capital income taxation, both theoretical and applied. This paper establishes a link between them, suggesting a potentially useful role for evasion additional to those previously identified: by committing to relatively tax enforcement, the government may be able to alleviate the welfare loss implied by its inability to commit to the tax rate. The scope for this role proves strikingly wide: it is optimal for the government to facilitate the evasion of the capital income taxes that it chooses to impose whenever the time consistent tax rate exceeds that which would be optimal if the government could commit to it.

Suggested Citation

  • Robin W. Boadway & Michael Keen, 1993. "Evasion and Time Consistency in the Taxation of Capital Income," Working Papers 890, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:890
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_890.pdf
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    Cited by:

    1. Selim, Sheikh, 2006. "On Policy Relevance of Ramsey Tax Rules," Cardiff Economics Working Papers E2006/19, Cardiff University, Cardiff Business School, Economics Section, revised Jul 2006.
    2. Konrad, Kai A. & Erik Lommerud, Kjell, 2001. "Foreign direct investment, intra-firm trade and ownership structure," European Economic Review, Elsevier, vol. 45(3), pages 475-494, March.
    3. Frode Brevik & Manfred Gärtner, 2008. "Can tax evasion tame Leviathan governments?," Public Choice, Springer, vol. 136(1), pages 103-122, July.
    4. Bethencourt, Carlos & Kunze, Lars, 2013. "Tax evasion, social norms and economic growth," MPRA Paper 48427, University Library of Munich, Germany.
    5. Dan Anderberg & Carlo Perroni, "undated". "Renegotiation of Social Contracts by Majority Rule," EPRU Working Paper Series 00-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    6. Konrad, Kai A., 1999. "Privacy, time consistent optimal labor income taxation and education policy," IZA Discussion Papers 82, Institute for the Study of Labor (IZA).
    7. Winand Emons, 2004. "Subgame-Perfect Punishment for Repeat Offenders," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 496-502, July.
    8. Pirttilä, Jukka, 1999. "Tax evasion and economies in transition : Lessons from tax theory," BOFIT Discussion Papers 2/1999, Bank of Finland, Institute for Economies in Transition.
    9. Konrad, Kai A., 2001. "Privacy and time-consistent optimal labor income taxation," Journal of Public Economics, Elsevier, vol. 79(3), pages 503-519, March.
    10. Alexander Haupt & Eckhard Janeba, 2009. "Education, redistribution and the threat of brain drain," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(1), pages 1-24, February.
    11. Robin Boadway & Motohiro Sato, 2000. "The Optimality of Punishing Only the Innocent: The Case of Tax Evasion," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(6), pages 641-664, December.
    12. Garon, Jean-Denis, 2016. "The commitment value of funding pensions," Economics Letters, Elsevier, vol. 145(C), pages 11-14.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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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