We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.

Gamannossi Degl'Innocenti, D., Rablen, M. D., Tax avoidance and optimal income tax enforcement, <<JOURNAL OF TAX ADMINISTRATION>>, 2017; 3 (2): 36-64 [http://hdl.handle.net/10807/134345]

Tax avoidance and optimal income tax enforcement

Gamannossi degl'Innocenti, Duccio
;
2017

Abstract

We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.
2017
Inglese
Gamannossi Degl'Innocenti, D., Rablen, M. D., Tax avoidance and optimal income tax enforcement, <<JOURNAL OF TAX ADMINISTRATION>>, 2017; 3 (2): 36-64 [http://hdl.handle.net/10807/134345]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10807/134345
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