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Who participates in tax amnesties? Self-selection of risk-averse taxpayers

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  • Marchese, Carla

    ()

  • Privileggi, Fabio

    ()

Abstract

In this paper we model taxpayer participation in an unanticipated tax amnesty which can be entered by paying a fixed amount. Taxpayers are characterized by a Constant Relative Risk Aversion (CRRA) utility function and differ in relative risk aversion coefficient and in income. With minor changes the same model also describes a FATOTA (Fixed Amount of Taxes or Tax Audit) system. Our results show that amnesties may fail as a self-selective device to fully separate large-scale from small-scale tax evaders and to extract resources from the former. Only taxpayers whose relative risk aversion falls within a given interval participate, while those whose evasion is too small or too large do not enter. The model is used to estimate relative risk aversion and tax evasion of participants in the 1991 and 1994 Italian income tax amnesties.

Suggested Citation

  • Marchese, Carla & Privileggi, Fabio, 2001. "Who participates in tax amnesties? Self-selection of risk-averse taxpayers," POLIS Working Papers 21, Institute of Public Policy and Public Choice - POLIS.
  • Handle: RePEc:uca:ucapdv:21
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    File URL: http://polis.unipmn.it/pubbl/RePEc/uca/ucapdv/marchese_privileggi.pdf
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    References listed on IDEAS

    as
    1. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
    2. Luigi Guiso & Monica Paiella, 2008. "Risk Aversion, Wealth, and Background Risk," Journal of the European Economic Association, MIT Press, vol. 6(6), pages 1109-1150, December.
    3. Brito, Dagobert L. & Hamilton, Jonathan H. & Slutsky, Steven M. & Stiglitz, Joseph E., 1995. "Randomization in optimal income tax schedules," Journal of Public Economics, Elsevier, vol. 56(2), pages 189-223, February.
    4. Franzoni, Luigi Alberto, 2000. "Amnesties, Settlements and Optimal Tax Enforcement," Economica, London School of Economics and Political Science, vol. 67(266), pages 153-176, May.
    5. Fisher, Ronald C. & Goddeeris, John H. & Young, James C., 1989. "Participation in Tax Amnesties: The Individual Income Tax," National Tax Journal, National Tax Association, vol. 42(1), pages 15-27, March.
    6. Pestieau, Pierre & Possen, Uri M. & Slutsky, Steven M., 1998. "The value of explicit randomization in the tax code," Journal of Public Economics, Elsevier, vol. 67(1), pages 87-103, January.
    7. Marchese, Carla & Privileggi, Fabio, 1997. "Taxpayers' Attitudes toward Risk and Amnesty Participation: Economic Analysis and Evidence for the Italian Case," Public Finance = Finances publiques, , vol. 52(3-4), pages 394-410.
    8. Chu, C. Y. Cyrus, 1990. "Plea bargaining with the irs," Journal of Public Economics, Elsevier, vol. 41(3), pages 319-333, April.
    9. Fisher, Ronald C. & Goddeeris, John H. & Young, James C., 1989. "Participation in Tax Amnesties: The Individual Income Tax," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(1), pages 15-27, March.
    10. Grossman, Gene M & Katz, Michael L, 1983. "Plea Bargaining and Social Welfare," American Economic Review, American Economic Association, vol. 73(4), pages 749-757, September.
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    More about this item

    Keywords

    tax amnesty; tax evasion; relative risk aversion; self-selection;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D89 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Other
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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