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Optimal income taxation with tax avoidance and endogenous labor supply

Author

Listed:
  • George Casamatta

    (Laboratoire Lieux, Identités, eSpaces et Activités (LISA))

Abstract

We determine the optimal income tax schedule when individuals both determine endogenously their labor supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we propose a formula for the optimal marginal tax rate, that generalizes the standard Mirrlees formula to the case of tax avoidance. We also show that the results obtained by (2020) in the fixed income case hold true when labor supply is endogenous: with a low enough marginal cost of avoidance, part of the taxpayers, located in the interior of the skill distribution, optimally choose to avoid taxes.

Suggested Citation

  • George Casamatta, 2020. "Optimal income taxation with tax avoidance and endogenous labor supply," Working Papers 017, Laboratoire Lieux, Identités, eSpaces et Activités (LISA).
    • Handle: RePEc:lia:wpaper:017
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    File URL: https://umrlisa.univ-corse.fr/RePEc/lia/pdf/WorkingPaper17.pdf
    File Function: First version, 2020
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    More about this item

    Keywords

    tax avoidance; optimal income taxation;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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