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Optimal tax design with costly tax evasion

Author

Listed:
  • Siqi Wang

    (Graduate School of Economics and Business, Hokkaido University)

  • Jun-ichi Itaya

    (Department of Law and Economics, Hokusei Gakuen University)

Abstract

This paper extends the Atkinson-Stiglitz analysis to a dynamic overlapping generations model, incorporating the realistic assumption that agents can evade labor income taxes by misreporting their true income. They can do so by incurring both non-monetary and monetary costs, which are distinguished in the paper and shown to have different implications for optimal tax policies. By considering the monetary cost as a deferred payment, the paper shows that tax evasion concerns can render the well-known Atkinson-Stiglitz theorem invalid and provides critical insights into how different types of costs affect tax schedules.

Suggested Citation

  • Siqi Wang & Jun-ichi Itaya, 2023. "Optimal tax design with costly tax evasion," Economics Bulletin, AccessEcon, vol. 43(3), pages 1271-1278.
    • Handle: RePEc:ebl:ecbull:eb-23-00167
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2023/Volume43/EB-23-V43-I3-P108.pdf
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    References listed on IDEAS

    as
    1. Sören Blomquist & Vidar Christiansen & Luca Micheletto, 2016. "Public Provision of Private Goods, Self-Selection, and Income Tax Avoidance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 666-692, October.
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    3. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
    4. Christiansen, Vidar, 1984. "Which commodity taxes should supplement the income tax?," Journal of Public Economics, Elsevier, vol. 24(2), pages 195-220, July.
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    6. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents

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