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Is it possible to make tax evaders pay more by shifting taxation from income to consumption?

Author

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  • Giampaolo Arachi
  • Massimo D'Antoni

Abstract

One of the arguments advanced in favour of a tax shift from income to consumptiontaxation is that, with tax evasion, such a shift would increase the tax paid by evaders.Given that evasion is concentrated in specific sectors, individuals operating in such sectors,who evade all or most of their earnings, could spend only a share of their income ingoods for which consumption taxes can be evaded. In this paper we show that, under therealistic assumption that the income and the consumption tax (the VAT or a sales tax) arejointly evaded, such argument cannot survive a more accurate analysis. As a consequence ofthe tax shift from the income to the consumption tax, prices will adjust to restore the original situation, with no effect on real quantities.

Suggested Citation

  • Giampaolo Arachi & Massimo D'Antoni, 2012. "Is it possible to make tax evaders pay more by shifting taxation from income to consumption?," Politica economica, Società editrice il Mulino, issue 2, pages 157-168.
    • Handle: RePEc:mul:je8794:doi:10.1429/38639:y:2012:i:2:p:157-168
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