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Optimal tax policy under tax evasion

Author

Listed:
  • George Economides

    (Athens University of Economics and Business
    CESifo)

  • Apostolis Philippopoulos

    (Athens University of Economics and Business
    CESifo)

  • Anastasios Rizos

    (Athens University of Economics and Business
    Alpha Bank)

Abstract

We study the properties of the optimal tax mix in the presence of tax evasion. The setup is a version of the neoclassical growth model in which households can choose to under-report their labour and capital income, firms can choose to under-report their sales, and a Ramsey government, taking all this into account, chooses the time-paths of tax rates on labour, capital and consumption to maximize households’ lifetime utility. We show that tax evasion, and its type, are crucial to the properties of optimal tax policy.

Suggested Citation

  • George Economides & Apostolis Philippopoulos & Anastasios Rizos, 2020. "Optimal tax policy under tax evasion," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 339-362, April.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:2:d:10.1007_s10797-019-09564-7
    DOI: 10.1007/s10797-019-09564-7
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    3. Gaetano Lisi, 2024. "Shadow economy, “mixed” firms, and labour market outcomes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(3), pages 685-701, June.
    4. Gaetano Lisi, 2023. "Tax Audits, Tax Rewards and Labour Market Outcomes," Economies, MDPI, vol. 11(2), pages 1-12, February.

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    More about this item

    Keywords

    Tax evasion; Optimal taxation; Efficiency;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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