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Optimal Sales Tax Rebates and Tax Enforcement Consumers

  • Marcelo Arbex

    ()

    (Department of Economics, University of Windsor)

  • Enlinson Mattos

    ()

    (São Paulo School of Economics, Getulio Vargas Foundation)

We study an optimal commodity taxation problem and show that consumers have an important role as tax enforcers. Firms evade taxes by not issuing sales receipts. Requesting receipts is costly for buyers but forces ?rms to remit taxes to the government. To compensate buyers, the government o¤ers a tax rebate, which has a non-trivial income e¤ect and modi?es the traditional "Ramsey equation". Tax-enforcement policies a¤ect buyers?allocations directly and via the standard changes in the good?s price. The optimal policies depend on buyers? auditing and ?rms?concealment technologies. Welfare is higher if consumer auditing is the only tax enforcement policy.

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File URL: http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1302.pdf
File Function: First version, 2013
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Paper provided by University of Windsor, Department of Economics in its series Working Papers with number 1302.

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Length: 28 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:wis:wpaper:1302
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