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Original title:
Income tax evasion: tax elasticity, welfare, and revenue
Authors: Gillman, Max
Document type: Research reports
Year: 2020
Language: eng
Series: CERGE-EI Working Paper Series, volume: 675
Abstract: This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of the tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such Öscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government Öscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output.
Keywords: optimal evasion; tax law; welfare
Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp675.pdf
Original record: http://hdl.handle.net/11104/0312745
Permalink: http://www.nusl.cz/ntk/nusl-432302
The record appears in these collections:
Research > Institutes ASCR > Economics Institute
Reports > Research reports
Authors: Gillman, Max
Document type: Research reports
Year: 2020
Language: eng
Series: CERGE-EI Working Paper Series, volume: 675
Abstract: This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of the tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such Öscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government Öscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output.
Keywords: optimal evasion; tax law; welfare
Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp675.pdf
Original record: http://hdl.handle.net/11104/0312745
Permalink: http://www.nusl.cz/ntk/nusl-432302
The record appears in these collections:
Research > Institutes ASCR > Economics Institute
Reports > Research reports
Record created 2020-12-03, last modified 2023-12-06