Tax Enforcement May Decrease Government Revenue
Economics Bulletin, Forthcoming
Posted: 22 Oct 2009
Date Written: October 22, 2009
We analyze the relation between tax enforcement, aggregate output and government revenue when imperfectly competitive firms evade a specific output tax. We show that aggregate output decreases with tax enforcement. Government revenue increases with enforcement when the tax is low. When the tax is high, government revenue is either inversely U-shaped or decreasing with enforcement.
Keywords: Tax evasion, imperfect competition, government revenue
JEL Classification: D43, H26, H32
Suggested Citation: Suggested Citation