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A Collateral Tax Sanction: When Does it Mimic a Welfare-Improving Tag?

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  • Yulia (Paramonova) Kuchumova

    (National Research University Higher School of Economics)

Abstract

The suspension of a driver's license, the revocation of a passport or a professional license are used by the tax authorities as sanctions for failure to comply with tax obligations and are referred to as collateral tax sanctions. In this paper, I propose a new rationale for why it may be bene cial to use collateral tax sanctions for the purpose of tax enforcement. By affecting consumption and providing enforcement targeted to a group, collateral tax sanctions may allow the government to impose punishment correlated with an individual's earning potential. Such punishment also makes the effective tax rates correlated with an individuals' earning potential and therefore leads to a more effective redistribution of income. I show that the use of collateral tax sanctions could increase the CES social welfare function when the skill distribution of the targeted group rst-order stochastically dominates the skill distribution of the other group and the social welfare function is sufficiently concave.

Suggested Citation

  • Yulia (Paramonova) Kuchumova, 2017. "A Collateral Tax Sanction: When Does it Mimic a Welfare-Improving Tag?," HSE Working papers WP BRP 181/EC/2017, National Research University Higher School of Economics.
    • Handle: RePEc:hig:wpaper:181/ec/2017
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    References listed on IDEAS

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    More about this item

    Keywords

    collateral sanction; tax enforcement; ability; tag;
    All these keywords.

    JEL classification:

    • Z - Other Special Topics

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