Taxing Hard-to-Tax Markets
Tax enforcement costs constrain the government?s ability to observe economic transactions, giving rise to hard-to-tax (HTT) markets. In these markets transactions are untaxed and consumers are better off than in taxed markets. This paper studies a novel approach to combat evasion in HTT markets: consumer auditing, which rewards consumers for requesting transaction receipts. We develop a Hotelling-type spatial model of sales taxation to analyze the welfare and distributional effects of the implementation of this policy. We find that consumer auditing allows for a lower tax rate and greater provision of the public good in the economy. We show that this policy not only can enhance welfare, but also equalize utilities of consumers across markets.
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- Roger Gordon & Wei Li, 2005.
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Cahiers de recherche
- Marchese, Carla, 2006.
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POLIS Working Papers
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- Carla Marchese, 2009. "Rewarding the Consumer for Curbing the Evasion of Commodity Taxes?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(4), pages 383-402, December.
- Das-Gupta, Arindam, 1994. "A Theory of Hard-to-Tax Groups," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 28-39.
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