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Tax evasion, tax reward and the optimal fiscal policy

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  • Gaetano Lisi

Abstract

This theoretical paper studies the optimal fiscal policy in the presence of both pen- alties for tax evasion and rewards for tax compliance. Indeed, the presence of tax rewards changes the behaviour of firms and amplifies the role of the tax authority. In general, tax reward is able to reduce corporate tax evasion. However, the opti- mal fiscal policy depends on the fiscal scenario. Precisely, audit emerges as the main element of fiscal policy when tax evasion is widespread (negative scenario); whereas, in the positive fiscal scenario (where most people comply with tax rules), the range of fiscal policy choices is broader.

Suggested Citation

  • Gaetano Lisi, 2023. "Tax evasion, tax reward and the optimal fiscal policy," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2023(3), pages 309-327.
    • Handle: RePEc:fan:epepep:v:html10.3280/ep2023-003001
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration

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