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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.