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Income Tax Evasion and the Penalty Structure

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  • Rainald Borck

    (DIW Berlin)

Abstract

In the Allingham-Sandmo (AS) model of tax evasion, fines are paid on evaded income, whereas in the Yitzhaki (Y) model fines are levied on evaded tax. This note compares the two models. In the Y model, evasion is higher and tax revenue lower than in the AS model. If government seeks to maximize expected tax revenue, it would prefer penalties of the AS type if it maximizes expected voter welfare, it should choose Y type penalties. A voting model to determine the penalty structure is also considered.

Suggested Citation

  • Rainald Borck, 2004. "Income Tax Evasion and the Penalty Structure," Economics Bulletin, AccessEcon, vol. 8(5), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-04h20010
    as

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    References listed on IDEAS

    as
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    Cited by:

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    2. María Jesús Freire‐Serén & Judith Panadés, 2008. "Does Tax Evasion Modify the Redistributive Effect of Tax Progressivity?," The Economic Record, The Economic Society of Australia, vol. 84(267), pages 486-495, December.
    3. Ahmad, Sanep & Md Noor, Nor Ghani & Daud, Zulkifli, 2011. "Tax-Based Modeling of Zakat Compliance," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 45, pages 101-108.
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    5. Bernhard Neumärker & Gerald Pech, 2011. "Penalties in the Theory of Equilibrium Tax Evasion: Solving King John’s Problem," Public Finance Review, , vol. 39(1), pages 5-24, January.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

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