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Tax Evasion under Market Incompleteness

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  • Marco Maffezzoli

Abstract

The available empirical evidence suggests that the distribution of income and its composition play an important role in explaining tax noncompliance. We address the issue from a macroeconomic point of view, building a dynamic general equilibrium Bewley- Huggett-Aiyagari model that jointly endogenizes tax evasion and income heterogeneity. Our results showthat the model can successfully replicate the salient qualitative and quantitative features of U.S. data. In particular, the model replicates fairly well the shape of the cross-sectional distribution of misreporting rates over true income levels. Furthermore, we show that a switch from progressive to proportional taxation has important quantitative e¤ects on noncompliance rates and tax revenues.

Suggested Citation

  • Marco Maffezzoli, 2011. "Tax Evasion under Market Incompleteness," Working Papers 378, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    • Handle: RePEc:igi:igierp:378
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    Cited by:

    1. Di Nola Alessandro & Kocharkov Georgi & Vasilev Aleksandar, 2019. "Envelope wages, hidden production and labor productivity," The B.E. Journal of Macroeconomics, De Gruyter, vol. 19(2), pages 1-30, June.
    2. Alessandro Di Nola & Georgi Kocharkov & Aleksandar Vasilev, 2017. "Productivity, Taxation and Evasion: An Analysis of the Determinants of the Informal Economy," Bulgarian Economic Papers bep-2017-04, Faculty of Economics and Business Administration, Sofia University St Kliment Ohridski - Bulgaria // Center for Economic Theories and Policies at Sofia University St Kliment Ohridski, revised Apr 2017.
    3. Djawadi, Behnud Mir & Fahr, René, 2015. "“…and they are really lying”: Clean evidence on the pervasiveness of cheating in professional contexts from a field experiment," Journal of Economic Psychology, Elsevier, vol. 48(C), pages 48-59.
    4. Di Nola, Alessandro & Kocharkov, Georgi & Scholl, Almuth & Tkhir, Anna-Mariia & Wang, Haomin, 2022. "Taxation of Top Incomes and Tax Avoidance," VfS Annual Conference 2022 (Basel): Big Data in Economics 264016, Verein für Socialpolitik / German Economic Association.
    5. Bruno Chiarini & Maria Ferrara & Elisabetta Marzano, 2020. "Tax Evasion, Investment Shocks, and the Consumption Puzzle: A DSGE Analysis with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(4), pages 907-932, June.
    6. Alessandro Di Nola & Georgi Kocharkov & Almuth Scholl & Anna-Mariia Tkhir, 2021. "The Aggregate Consequences of Tax Evasion," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 198-227, April.
    7. Valentina Bosetti & Marco Maffezzoli, 2014. "Occasionally binding emission caps and real business cycles," Working Papers 523, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    8. Fernández-Bastidas, Rocío, 2023. "Entrepreneurship and tax evasion," Economic Modelling, Elsevier, vol. 128(C).
    9. Almuth Scholl & Liang Tong, 2020. "Sovereign Default, Taxation, and the Underground Economy," Working Paper Series of the Department of Economics, University of Konstanz 2020-02, Department of Economics, University of Konstanz.

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