Trading Off Tax Distortion and Tax Evasion

25 Pages Posted: 1 Aug 2001

See all articles by Wolfram F. Richter

Wolfram F. Richter

TU Dortmund University; CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Robin Boadway

Queen's University; CESifo (Center for Economic Studies and Ifo Institute); Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPEE)

Date Written: June 2001

Abstract

Tax evasion is modeled as a risky activity and integrated into a standard problem of optimal tax design. It is shown that there is a trade off between reducing tax evasion and reducing tax distortion. Thus it is efficient to supplement a broad-based wage tax by a tax on specific consumption if the former is evaded and the latter not. The optimal tax structure can be characterized by an explicit formula.

Keywords: Tax Evasion, Risk-Taking, Optimal Taxation

JEL Classification: H26, H21

Suggested Citation

Richter, Wolfram F. and Boadway, Robin, Trading Off Tax Distortion and Tax Evasion (June 2001). Available at SSRN: https://ssrn.com/abstract=277282 or http://dx.doi.org/10.2139/ssrn.277282

Wolfram F. Richter (Contact Author)

TU Dortmund University ( email )

Vogelpothsweg 87
D-44221 Dortmund
Germany
+49-231-755-3146 (Phone)
+49-231-755-5404 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Robin Boadway

Queen's University ( email )

99 University Avenue
Kingston K7L 3N6, Ontario
Canada
613-533-2266 (Phone)
613-533-6668 (Fax)

HOME PAGE: http://qed.econ.queensu.ca/pub/faculty/boadway/

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPEE)

Ste-Foy, Quebec G1K 7P4
Canada

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