Tax Amnesties as Asset Laundering Devices
Journal of Law, Economics, & Organization, Volume 12, No. 2, Fall 1996.
Posted: 21 Oct 1996
This paper analyses the effect of a one-time tax amnesty intended to induce private citizens to voluntarily declare black assets accumulated from past tax evasion. In a dynamic setting, we find that such an amnesty tends to enhance voluntary taxpayer compliance and reduce the size of the underground economy. However, it also generally tends to reduce aggregate net revenues collected by the government in the long run, provided black assets command a higher pretax rate of return than white assets. This owes to a post- amnesty reduction in involuntary revenue collections that outweighs direct amnesty receipts and the increase in voluntary compliance. The desirability of such amnesties thus depends on the importance of unearthing black assets per se relative to increasing revenue collections.
JEL Classification: H26, H30, K42
Suggested Citation: Suggested Citation