Tax Evasion and the Allocation of Capital

33 Pages Posted: 17 Jul 2000 Last revised: 21 Jul 2010

See all articles by Don Fullerton

Don Fullerton

University of Illinois at Urbana-Champaign - Department of Finance; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Marios Karayannis

PriceWaterhouseCoopers LLP - Washington National Tax Service

Date Written: December 1993

Abstract

The efficiency cost of capital misallocations between the corporate sector and the noncorporate sector is typically measured using statutory tax differences. Corporate-source income tax compliance is high because of third party reporting, however, while noncorporate rental income tax compliance is low. Differential evasion thus exacerbates statutory differences and enlarges the efficiency cost. To measure this effect, we build a numerical general equilibrium model where households simultaneously choose portfolios of risky assets and fractions of income to report.

Suggested Citation

Fullerton, Don and Karayannis, Marios, Tax Evasion and the Allocation of Capital (December 1993). NBER Working Paper No. w4581. Available at SSRN: https://ssrn.com/abstract=226776

Don Fullerton (Contact Author)

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
(217) 244-3621 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Marios Karayannis

PriceWaterhouseCoopers LLP - Washington National Tax Service

Washington, DC 20006
United States

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