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The Design of Commodity Taxes in the Presence of Tax Evasion With Illustrative Evidence From India

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  • Ranjan Ray

    (University of Tasmania)

Abstract

This article analyzes the impact of tax evasion in the optimal commodity tax model with heterogeneous individuals. A recent model of indirect tax evasion is applied to the many-person case. Indian data show that sales underreporting has a major impact on tax design, and makes the optimal commodity taxes more redistributive. Thus, tax evasion plays a role similar to that of inequality aversion in traditional tax calculations. The tax evasion parameter is endogenized and shown to be nonuniform across items. The article also introduces a framework that allows simultaneous analysis of commodity and income tax evasion.

Suggested Citation

  • Ranjan Ray, 1998. "The Design of Commodity Taxes in the Presence of Tax Evasion With Illustrative Evidence From India," Public Finance Review, , vol. 26(5), pages 503-518, September.
    • Handle: RePEc:sae:pubfin:v:26:y:1998:i:5:p:503-518
    DOI: 10.1177/109114219802600505
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    References listed on IDEAS

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