redistributional aspects of tax evasion most empirical studies of income distribution use official tax data based on reported income in the presence of tax evasion or a large irregular economy such data give an incorrect picture of the actual income distribution in this paper a model of tax evasion originally due to allingham and sandmo 1972 is developed to analyze the relation between the actual and the officially reported income distribution it is shown that within the framework of this model the distribution of total income which also takes income from the hidden sector into account is generally more uneven than the distribution of officially reported disposable income it is also concluded that in the presence of tax evasion government policy aimed at reducing the degree of inequality can sometimes be counterproductive policy measures which seem egalitarian in the sense that they make the distribution of officially reported disposable income more even might very well make total income less evenly distributed

tax collection with agency costs private contracting or government bureaucrats historically governments contracted with private agents known as tax farmers to collect taxes this paper develops a theoretical framework for determining when a welfare maximizing government should choose tax farmers over bureaucratic tax collectors while bureaucratic collectors have an incentive to shirk and raise collection costs above least costs profit maximizing private collectors tend to reduce tax evasion below the optimal level generally the choice of collection methods depends on a comparison of the welfare loss associated with monitoring in the bureaucratic setting and the welfare loss associated with overdetection of evasion in the private setting copyright 1992 by the london school of economics and political science

the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

the political economics of redistribution inequality and tax avoidance a central result in the political economy of taxation is that the degree of redistribution is positively linked to income inequality however empirical evidence supporting such a relationship turns out to be mixed this paper shows how the different empirical reactions can be rationalized within a simple model of tax avoidance and costly tax enforcement by focusing on structure induced equilibrium in which taxpayers vote over the size of the income tax and the level of tax enforcement we show that more inequality may well reduce the extent of redistribution depending on two opposing effects the standard political effect and a negative tax base effect working through increases in the average level of tax avoidance and the share of enforcement expenditures in total tax revenue

fraudulent collection of unemployment benefits a theoretical analysis with reference to income tax evasion abstract the harshest abusers of the unemployment insurance program are those employed who collect benefits while working this paper analyzes fraudulent claiming behavior and optimal deterrence policy under two alternative penalty schemes commonly used in tax evasion analyses one relates punishment to the magnitude of the dishonesty whereas the other relates punishment to the amount of illegal returns two exclusive features of fraudulent benefit claiming are given special attention the requirement to report at a labor exchange to demonstrate availability for work and the need to serve a waiting period before benefits can be collected

optimal redistribution and monitoring of labor supply this paper extends the mirrlees 1971 model of optimal non linear income taxation with a monitoring technology that allows the government to verify labor supply at a positive but non infinite cost we analyze the joint determination of the non linear monitoring and tax schedules and the conditions under which these can be implemented monitoring of labor supply reduces the distortions created by income taxation and raises optimal marginal tax rates possibly above 100 the optimal intensity of monitoring increases with the marginal tax rate and the labor supply elasticity our simulations demonstrate that monitoring strongly alleviates the trade off between equity and efficiency welfare gains of monitoring are around 2 8 of total output the optimal intensity of monitoring follows a u shaped pattern similar to that of optimal marginal tax rates our paper can explain why large welfare states optimally rely on work dependent tax credits active labor market policies benefit sanctions and work bonuses in welfare programs

on optimal public good provision with tax evasion it is proved that for public goods with zero income effects also called ziff public goods tax evasion does not affect the optimal level of public expenditure further examples show that in general tax evasion may lead to less but also to more public expenditure

inflation and tax evasion an empirical analysis this paper contains an analysis of the effect of inflation on aggregate tax evasion in the united states over the period 1947 81 it is found that tax evasion in both absolute and relative terms is positively related to the inflation rate further the results indicate that aggregate evasion has risen in both absolute and relative terms with increases in the marginal tax rate but has fallen with increases in the detection probability the penalty rate and the wage share of income finally evasion has risen in absolute terms but has fallen in relative terms when real true income has risen

poverty trap and the hidden labor market abstract using general equilibrium framework this study investigates the determination of the wage rate the number of workers their hours worked and comparative static effects of policy parameters in legal and hidden labor markets

dispatch planning using newsvendor dual problems and occupation times application to hydropower abstract we consider price driven dispatch planning under price uncertainty a storable commodity is optimally sold and purchased over time first we consider models where the storage level is constrained in expectation the dual of the corresponding optimization problem is related to the newsvendor problem exact solutions of bang bang type are given the second methodology is for high frequency dispatch decisions in multistage stochastic programming models to overcome the curse of dimensionality prices are modeled by occupation times at price levels in a case study we consider a pumped storage hydropower plant numerical solutions are given which have similar patterns as for the first exactly solvable problems

taxation with costly administration the concept of a tax technology is used here as providing a unified framework for analyzing both administrative activity by tax authorities and tax resisting activity by taxpayers this framework provides a simple formalization of adam smith s four components of tax costs administration substitution active noncompliance and passive compliance the model is used to derive policy implications concerning the proper measurement of the cost of public funds and concerning the criterion for optimal administration

plea bargaining with the irs abstract the purpose of this paper is to propose a new evasion counteracting policy and to prove its welfare improving property the new fatota policy allows a target group of businesses to choose between the following two options paying a fixed amount of taxes thus exempting themselves from tax audits or paying only the amount they choose to pay and subject to possible tax audits it is shown that fatota is very similar to the plea bargaining system of the u s criminal proceedings and our results can be treated as an extension of the grossman katz analysis to the crime of tax evasion

tax evasion and labor markets abstract concern with revenue losses inequities and inefficiency that may result from tax evasion has produced a number of formal analyses of taxpayer dishonesty most of this work has concentrated on the behavior of individual evaders and has ignored the interaction between evasion and labor market equilibrium to remedy this our analysis uses a model with two labor markets which differ in the potential for evasion to examine how changes in various tax parameters affect evasion and labor market equilibrium we also simulate the effect of switching from a proportional to a progressive tax system in order to evaluate the well known claim that progressivity encourages evasion

tax evasion and the optimum general income tax abstract this paper incorporates tax evasion into an optimum general income tax problem with endogenous labor supply it posits a two group model with high and low wage individuals to investigate the properties of optimal audit and tax structures the following main results are obtained first high wage persons are never audited while low wage persons are audited with a probability strictly less than one secondly high wage persons should face a zero marginal tax rate thirdly low wage individuals who have been audited and found innocent should pay a lower tax than those who are not audited fourthly there are two possible tax regimes low wage persons face a positive marginal tax rate under one regime and a zero rate under the other fifthly even if honesty cannot be rewarded the other results of the paper continue to hold

personal income tax reforms a genetic algorithm approach given a settled reduction in the present level of tax revenue and by exploring a very large combinatorial space of tax structures in this paper we employ a genetic algorithm in order to determine the best structure of a real world personal income tax that allows for the maximisation of the redistributive effect of the tax while preventing all taxpayers being worse off than with the present tax structure we take italy as a case study

labour supply tax evasion and the marginal cost of public funds an empirical investigation abstract in this paper we extend the concept of marginal cost of public funds itmcf to incorporate tax evasion in the labour market mcf values are also computed from various tax reforms applied to the province of quebec canada 1985 for this purpose a utility based labour supply model that allows for both regular and irregular work activities is used at the benchmark situation the mcf associated with an increase in marginal income tax rates ranges between 1 39 and 1 53 depending upon whether we consider rationing or not moreover the presence of the irregular sector accounts for between 0 02 and 0 05 of this mcf although small in magnitude the impact of the irregular sector increases rapidly with the level of marginal tax rates

pareto efficient income taxation under costly monitoring abstract this paper studies the problem of pareto efficient fiscal policies when labour supply is elastic and the government has no a priori information on income earned the model is a two class economy with an official and an unofficial labour market official income is taxed non linearly while unofficial income is only observable after a costly audit upon which it is taxed at an exogenous penalty rate after characterisation of the pareto efficient audit and tax policies it is verified how these policies react to a higher government revenue requirement an increase in the penalty rate a stronger ambition to redistribute in the two last scenarios the effect on the marginal tax and the audit rate is shown to decompose into a government revenue effect and a substitution effect a numerical example shows that the substitution effects are of minor importance suggesting that first intuition about the best way for a government to cope with increased evasion opportunities substituting auditing effort for high marginal tax rates sketches only part of the picture

evading auditing and taxing the equity compliance tradeoff tax evasion and auditing are analyzed in a model of linear income taxation taxpayers minimize expected tax payments including penalty for underreporting while the tax administration sets its audit policy to maximize expected net revenue under the restriction of only two audit rates per class of taxpayers given the reaction of taxpayers and tax administration we derive the optimal income tax that the government should adopt to maximize social welfare there are several classes of taxpayers each characterized by a given distribution of pretax income and specific audit policy parameters

a fairness approach to income tax evasion abstract the tax that a taxpayer wishes to evade is determined on the basis of his perception of the fairness of his fiscal treatment with respect to both governmental supply of public goods and the perceived behaviour of other taxpayers the coercive powers of the state and the taxpayer s attitude toward risk determine the extent to which this desired level is undertaken in practice this approach is able to produce implications for the relationship between public expenditure tax rates and tax evasion which are more consistent with empirical evidence than the results of the conventional portfolio choice approach

characteristics of households in the informal sector of an emerging economy using the case study of trinidad and tobago we investigate the socio economic demographic and attitudinal characteristics of households that participate in the informal sector of an emerging economy and their perception of the risk of detection by tax authorities while doing so data are gathered from a cross sectional field survey covering 570 households results using multinomial logit and ordered probit models suggest that households are motivated to participate in the informal sector when members spend little time in formal sector activity believe that taxes are too high and their incomes are too low have dependents to support and believe that the resulting tax evasion will go undetected their perception of the risk of detection by the tax authority is determined largely by the income they earn in the formal sector and the extent of government bureaucracy prevailing there

tax evasion and the size of the underground economy abstract the theoretical literature on the relationship between the tax system and the underground economy is extended using a model similar to the one examined by watson journal of public economics 1985 27 231 246 in which tax evasion is possible in one sector of the economy but is impossible in the other we prove that a rise in the tax rate increases decreases the number of agents in the sector in which tax evasion is possible if preferences exhibit increasing decreasing relative risk aversion we also use our model to investigate the relationship between the tax rate and the total amount of tax evaded

plea bargaining with the irs extensions and further results abstract chu journal of public economics 41 1990 319 333 proposes a tax scheme called fatota under which taxpayers are given the choice between paying a fixed amount of taxes and thus being exempted from tax audit or paying only what taxpayers claim they owe and being subject to tax audits for possible evasion in this paper we extend chu s finding with regard to the pareto improving property of fatota to a more general setting including nonlinear tax penalty schedules complicated audit rules and endogenous labor supply we also show that any tax system in which the highest income taxpayer faces audit risk and or tax distortion can be pareto improved upon by the introduction of fatota we relate this result to seade s journal of public economics 7 1977 203 235 celebrated finding in the optimal taxation literature that any income tax schedule with a positive marginal tax rate at the top of the scale can be replaced by another tax schedule which is strictly pareto improving

the optimal size of a tax collection agency the condition that characterizes the optimal size of a tax collection agency is derived and then given a simple interpretation in terms of excess burden the paper clarifies an earlier finding of sandmo which suggests that the optimal degree of enforcement is higher than a simple cost benefit calculation would indicate the appropriate condition is that at the margin the resource cost of increasing enforcement should equal the saving of excess burden due to the decline in exposure to risk the increased revenue gained from stricter enforcement does not enter the expression because it merely represents a transfer among the economy s identical agents

income tax evasion an intersectoral analysis abstract this paper develops an intersectoral model of income tax evasion with general equilibrium effects key elements of the model are imperfectly substitutable outputs from the compliant and evading sectors and workers with heterogeneous evasion costs the model allows for biased public expenditures a wide range of behavioural responses and both legitimate and criminal activities evading tax as well as tax avoidance activities qualitative and quantitative assessments are undertaken for the effects of tax rate changes on evasion activity relative output prices and real tax revenues this approach offers useful findings for taxation policy and is amenable to further analytical extensions

costly state verification with varying risk preferences and liability abstract in the scenario of loan contracts with costly state verification we examine how the properties of the set of states different risk preferences of debtors and varying liability of lenders affect the structure of optimal repayments in particular we show that with risk averse debtors a general set of states a constant observation cost and both unlimited and limited lender liability the debtor is strictly better off revealing the true state of nature when his realized revenue is low which implies that optimal debtor consumption has a downward jump around the single switch from observed to unobserved states if the debtor can destroy revenue or if the debtor is risk neutral this non monotonicity of consumption disappears moreover given the loan size there is more monitoring under debtor risk aversion than risk neutrality we present simulations showing that a contract with unlimited lender liability and debtor risk aversion has a higher expected observation cost but a lower variance of consumption than a contract with limited lender liability finally we discuss the problems of commitment to verification and contract renegotiation in this framework

tax evasion with labour income allingham and sandmo s 1972 classic paper on tax evasion set out a simple framework for looking at the effects of regular tax parameters and of the structure of penalties on the amount of tax dodging carried out by a tax evader subsequent papers have enriched the basic model of individual behaviour and have attempted to adduce some empirical evidence 2 but with few exceptions the essential nature of the assumed underlying problem has remained the same how much income shall i reveal to the authorities in the face of the known penalties and the known possibility of getting caught whilst this approach is useful for some types of tax evasion by individuals it is clearly inappropriate for others such as the phenomenon of working off the books rather than concealing a portion of a uniform lump of income that is undistinguished as to its source the person cheats the government by taking one or more different jobs either in addition to or as a replacement for his regular employment the income from which is administratively difficult to tax this paper examines the implications of the possible diversity of form of the tax evasion problem for the analysis of the fundamental questions which allingham and sandmo addressed the effect of government instruments on the incentives to participate in legal and illegal work activities to do this we must concentrate on one major development of the original model namely that where income is endogenous in effect we construct a particular version of the analysis of labour supply under uncertainty within which to

government policies and graft in an economy with endogenous labor supply abstract this paper is an extension of marcouiller and young s am econ rev 85 1995 630 paper which shows that in a two good economy with constant labor supply the government can always increase graft by squeezing the formal sector out of existence in this paper we find that if individuals choose the amount of labor they supply the government can increase graft by eliminating formal production in relatively rare cases

optimal income tax under the threat of migration by top income earners we examine how allowing individuals to emigrate to pay lower taxes changes the optimal nonlinear income tax scheme in a mirrleesian economy an individual emigrates if his domestic utility is less than his utility abroad net of migration costs utilities and costs both depending on productivity a simple formula that complements saez s formula obtained in closed economy is derived for the marginal tax rates faced by top income earners it depends on the labour elasticity the tax rate abroad and the migration costs expressed as a fraction of the utility obtained abroad the rawlsian marginal tax rates obtained for the whole population illustrate a curse of the middle skilled simulations are provided for the french economy

tax arbitrage and labor supply we examine how tax avoidance in the form of trade in well functioning asset markets affects the basic labor supply model we show that tax arbitrage has dramatic implications for positive normative and econometric analysis of how taxes affect work incentives

optimal taxation with costly enforcement and evasion abstract this paper analyzes the relationship between optimal taxation and optimal tax enforcement a central question concerns the extent to which revenue should be raised through higher tax rates which distort behavior or greater enforcement which distorts behavior and also entails direct resource costs in the models examined some expenditure on enforcement may be optimal despite its resource cost its distortionary effect and the availability of other revenue sources having no enforcement costs rules for optimal tax rates and enforcement expenditures are derived which also indicate the marginal cost of government funds and optimal enforcement priorities for a tax collection agency

on indirect tax evasion abstract this paper examines some aspects of the decision to evade indirect taxes in the context of a monopolistic firm in particular the degree of interdependence between the tax shifting and the tax evasion decisions is analyzed both in the case of a fixed and of a variable probability of being detected it is shown that in the first case the shifting and evasion decisions are separable while in the second case this is no longer true in this latter case a rule according to which the probability decreases with larger declarations can be said to be an efficient one the conditions for a firm s becoming a completely submerged one are derived and finally direct and indirect tax evasion are compared it is shown that for decreasing risk aversion an indirect tax is evaded as a percentage less than a profit tax of equal yield

taxation and labour supply with risky activities consider the following three phenomena a in recent years dramatic shifts in the types of contract between london cabbies and the taxi owners have been observed b if one tries to hire a housepainter in the uk one is often quoted two rates one for official work during regular hours and for unofficial weekend and evening work c in two unrelated discussions with economics professors about the textbook model of taxation and labour supply each revealed to me that marginal hours released from his regular employment were spent not in the form of leisure but in participating in stock market speculation

tax evasion inflation and stabilization abstract this paper focuses on the public resort to tax evasion in developing countries as an adjustment tactic during economic downturn we show using a theoretical model of intertemporal consumption that tax compliance declines when current income declines expectations about future income improve or inflation rises we then apply the model empirically to the cases of argentina brazil and chile three countries which have long experience with tax evasion and inflation over the last 40 years and find confirmation

experimental evidence on the relationship between tax evasion opportunities and labor supply abstract motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities we first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment n 205 in which all participants undertake a real effort task over several rounds subjects face a tax rate that varies across rounds and are required to pay taxes on earned income the treatment group is given the opportunity to underreport income while the control group is not we find evidence that participants in the treatment group respond differently to changes in the net of tax rate than participants in the control group the effect is more prevalent when tax rates fall additionally the direction of the treatment effect is dependent on the evolution of tax rates across rounds

tax enforcement a public choice perspective federal income tax inforcement varies greatly across individual states while it is not known if this interstate variation enhances efficiency anecdotal evidence suggests it does not in this paper we apply the weingast moran model to the treasury and explore the relationship between the legislature and the irs specifically we model irs audit rates by state as a function of both political and efficiency considerations we find that the interstate differences in enforcement is influenced by efficiency considerations but also the irs shifts enforcement away from states represented by legislators who sit on committees with oversight responsibility for the irs

tax evasion concealment and the optimal linear income tax this paper incorporates tax evasion into the analysis of optimal linear income taxation taxevaders can influence the probability of being caught if audited through expenditures on concealment it is proved that tax evasion can make a given tax system more as well as less progressive depending on the concealment technology the paper derives and interprets simple formulas for characterizing the optimal tax rate and audit probability it also gives sufficient conditions under which tax evasion lowers the optimal tax rate while showing that an increase in the optimal tax rate is also possible

optimal tax mix with income tax non compliance abstract although developing countries face high levels of income inequality they rely more on consumption taxes which tend to be linear and are less effective for redistribution than a non linear income tax one explanation for this pattern is that the consumption taxes are generally more enforceable in these economies this paper studies the optimal combination of a linear consumption tax with a non linear income tax for redistributive purposes in our model households might not comply with the income tax code by reporting income levels that differ from their true income however the consumption tax is fully enforceable we derive a formula for the optimal income tax schedule as a function of the consumption tax rate the recoverable elasticities and the moments of the taxable income distribution our equation differs from those of mirrlees 1971 and saez 2001 because households face a consumption tax and they respond to income tax not only through labor supply but also through mis reporting their incomes both aspects are empirically relevant to our calibration of the optimal top rate in the russian economy we then characterize the optimal mix between a linear consumption tax rate and a non linear income tax schedule finally we find that the optimal consumption tax rate is non increasing in the redistributive motives of the social planner

income tax evasion labour supply and the equity efficiency tradeoff abstract this paper is an attempt to incorporate tax evasion into the analysis of optimum income taxation a model of variable labour supply with tax evasion is used to derive supply functions for labour in regular and irregular markets given taxpayer behaviour the government chooses tax rates penalties and the probability of detection to maximize a utilitarian social welfare function the results consist in the derivation of a formula for the optimum marginal tax rate and a characterization of the factors determining the choice between the penalty rate and the probability of detection as instruments for the control of tax evasion

optimal taxation and optimal tax systems the theory of optimal taxation has for the pas two decades been the reigning normative approach of taxation this paper argues that in its current state optimal tax theory is incomplete as a guide to action concerning many critical issues in tax policy it is incomplete because it has not yet come to terms with taxation as a system of coercively collecting revenues from individuals who will tend to resist the coercive nature of collection taxes implies that the resource cost of implementing a tax system have been and will continue to be a critical determinant of appropriate tax policy the paper first presents the three cornerstone propositions of optimal tax theory and then it discusses the influence of these propositions on recent tax policy developments it concludes by sketching an alternative to optimal taxation called the theory of optimal tax systems which embraces the insights of optimal taxation but also considers the technology of raising taxes and the constraints placed upon tax policy by that technology the optimal tax systems perspective is shown to shed light on the choice of tax instruments the problem of tax evasion and the appropriate tax treatment of capital income this abstract was borrowed from another version of this item

fixing the leak in okun s bucket optimal tax progressivity when avoidance can be controlled this paper examines optimal income tax progressivity when avoidance responses to taxation are important and can be controlled at some cost by the government a simple example shows that ignoring the fact that avoidance can be controlled that the leak in okun s bucket can be fixed can lead to misleading implications about the optimal degree of tax rate progressivity the paper then generalizes the standard modei of the optimal linear income tax to include taxpayer avoidance behavior and the ability of government to control the avoidance but not the labor supply response to higher marginal tax ites the discussion suggests that if the tax burden is to be made more progressive base broadening and increased enforcement ought to be considered as alternatives or complements to increasing tax rates for high income individuals

the economics of taxpayer compliance there is now a great deal of evidence suggesting that tax evasion is fairly widespread throughout european and north american economies estimates of the so called black economy indicate that perhaps 10 per cent of economic activity in these countries has been driven underground in the attempt to evade payment of tax for a detailed survey see pyle 1989 chs 2 4

smuggling trade and price disparity a crime theoretic approach abstract we provide a simple but fairly general model of smuggling capable of handling both the bhagwati hansen type of illegal trade through illegal entry points and the pitt type of illegal trade through legal entry points the paper focuses on the latter type of trade we take explicit account of the risk and uncertainty associated with illegal activity and moreover treat the real costs of smuggling as a choice variable of the firm it is shown that smuggling legal trade and price disparity may coexist as in pitt the economy s response to increased enforcement of laws against smuggling is explicitly analyzed it is shown that increased enforcement raises real per unit costs of smuggling and the domestic price of importables but lowers both the absolute quantity and the share of illegal imports in total imports the effect on welfare is ambiguous

some tests on the effects of inflation targeting in new zealand canada and the uk abstract there is no empirical evidence that inflation targeting has changed macroeconomic variables in the unrestricted var context there are two possible interpretations for this result one is that inflation targeting may truly have no significant impacts on macroeconomic variables the alternative scenario might be that the number of parameters in our model is so large relative to the number of observations that our tests do not have enough power to reject the null hypothesis of no structural changes further statistical investigations are desirable as more data become available and alternative models are devised

the desirability of a permanent tax amnesty abstract there are two main concerns about tax amnesty first if it is anticipated it may increase cheating and reduce the efficiency of the tax system second amnesty may be inequitable by letting cheaters off the hook however several federal governments currently hold a policy of long term or permanent tax amnesty in apparent defiance of these concerns this paper examines fully anticipated tax amnesty and finds that it is possible for a permanent tax amnesty to actually increase rather than decrease the efficiency and equity of the tax system

a general equilibrium model of crime commission and prevention abstract the model developed in this paper features a general equilibrium specification of the relationships among criminals victims of crime and a law enforcement agency these relationships are employed to endogenously derive an explicit intuitively appealing technology of crime commission and prevention the solution to the present model is therefore obtained with a set of more elementary assumptions than the previous literature where arbitrary curvature assumptions are invoked

irreversibility and uncertainty cause an intergenerational equity efficiency trade off abstract two important policy goals in intergenerational problems are pareto efficiency and sustainability i e intergenerational equity we demonstrate that the pursuit of these goals is subject to an intergenerational equity efficiency trade off our analysis highlights two salient characteristics of intergenerational problems and policy i temporal irreversibility i e the inability to revise one s past actions and ii uncertainty of future consequences of present actions in human environment systems we employ a two non overlapping generations model that combines an intragenerational production decision on the use of circulating capital and a non renewable resource with a negative intergenerational externality as an unforeseen contingency if initially unknown problems become apparent and policy is enacted after irreversible actions were taken policy making faces a fundamental trade off between ex post pareto efficiency and sustainability that is one can achieve either one of these two goals but not both

constrained efficient fine cum tax rate structures the case of constant relative risk aversion this paper explores the possibility that fines and tax rates impose different welfare costs on different types of taxpayer so that the government may want to apply different fine tax rate treatments to different types of taxpayer under the assumption that taxpayers exhibit constant relative risk aversion we characterize the constrained pareto efficient fine tax rate structure showing that i the co existence of compliers the above ground economy and evaders the underground economy is typical at the pareto optimum and ii pareto efficiency requires compliers to face tax rates no higher and fines no lower than those faced by evaders

tax evasion and occupational choice this paper is concerned with the combined effect of tax compliance and tax audit policy on the occupational choice of individuals and on public policy objectives such as tax revenue total production and social welfare individuals are assumed to have a choice between riskless work and a risky entrepreneurial occupation they are only differentiated according to their attitudes towards risk more risk averse individuals go into the safe occupation and less risk averse people become entrepreneurs tax evasion is only accessible to the latter and therefore its control tends to discourage risk taking whether control of tax evasion is desirable for the economy as a whole depends on the objective function of the government it is shown that tax audit policy has conflicting effects on tax revenue per capita income and social welfare these conflicts are illustrated through a numerical example in this paper the emphasis is placed on the clarity and the simplicity of the presentation so as to argue that even though the tax schedule can hardly be differentiated across individuals tax evasion and its control can be used by policymakers to introduce variability in the individual s tax treatment

the optimal linear taxation of employment and self employment incomes abstract this paper models optimal linear taxation when occupational choice and labour supply are endogenous workers choose between paid employment self employment and unemployment self employment incomes are risky and employees may be involuntarily laid off calibrating the model to the uk economy the optimal tax solution involves relatively high taxation with substantial redistribution and a higher nominal but not effective marginal tax rate imposed on the self employed than on employees the implications of making unemployment benefits as well as tax rates endogenous are also analysed and robustness checks are performed

tax evasion and the allocation of capital abstract the efficiency cost of capital misallocations between the corporate sector and the noncorporate sector is typically measured using statutory tax differences corporate source income tax compliance is high because of third party reporting however while noncorporate rental income tax compliance is low differential evasion thus exacerbates statutory differences and enlarges the efficiency cost to measure this effect we build a numerical general equilibrium model where households simultaneously choose portfolios of risky assets and fractions of income to report