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The Reform and Design of Commodity Taxes in the Presence of Tax Evasion with Illustrative Evidence from India

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  • Ray, R.

    (Tilburg University, School of Economics and Management)

Abstract

The literature on tax evasion and its implication for optimal tax theory has concentrated on income tax evasion. The issue of commodity tax evasion has received relatively little attention even though it is important in many cases, especially in developing countries. This paper proposes a theory of marginal reform of indirect taxes that recognises the presence of commodity tax evasion. Illustrative evidence from Indian data confirm the sensitivity of the Pareto improving direction of marginal tax changes to alternative a priori assumptions on commodity tax evasion. The theory of marginal reform of commodity taxes is, then, extended to propose a theory of marginal reform of audits and penalties, and several propositions are derived. The underlying theory of tax design is also extended to include income tax design and income tax evasion, and a framework is proposed to allow the simultaneous analyses of both forms of tax evasion, and study of their impact on the "optimal mix" of direct and indirect taxes.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Ray, R., 1994. "The Reform and Design of Commodity Taxes in the Presence of Tax Evasion with Illustrative Evidence from India," Other publications TiSEM bf0ccfd6-fccc-4c21-a70d-e, Tilburg University, School of Economics and Management.
    • Handle: RePEc:tiu:tiutis:bf0ccfd6-fccc-4c21-a70d-e1a4d8155464
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    References listed on IDEAS

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