Public Provision of Private Goods, Self‐Selection, and Income Tax Avoidance

27 Pages Posted: 17 Nov 2016

See all articles by Soren Blomquist

Soren Blomquist

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Vidar Christiansen

University of Oslo - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Luca Micheletto

University of Milan

Date Written: October 2016

Abstract

Redistributive taxation should benefit those with low earnings capacity rather than those who choose a lower income to obtain tax savings. Several contributions have highlighted how public provision of work complements can discourage people from lowering labor supply to diminish taxable income. We show how tax avoidance, previously neglected, can alter the conclusions regarding public provision. Tax avoidance breaks the link between labor supply and reported income. An agent reducing his reported income to escape taxes might no longer forego a publicly provided labor complement, because he can now lower his income by avoiding more rather than working less.

Keywords: Income misreporting, optimal nonlinear income tax, tax avoidance

JEL Classification: H21, H26, H42

Suggested Citation

Blomquist, Soren and Christiansen, Vidar and Micheletto, Luca, Public Provision of Private Goods, Self‐Selection, and Income Tax Avoidance (October 2016). The Scandinavian Journal of Economics, Vol. 118, Issue 4, pp. 666-692, 2016, Available at SSRN: https://ssrn.com/abstract=2870823 or http://dx.doi.org/10.1111/sjoe.12151

Soren Blomquist (Contact Author)

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 18 471 1102 (Phone)
+46 18 471 1478 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

Vidar Christiansen

University of Oslo - Department of Economics ( email )

P.O. Box 1095 Blindern
N-0317 Oslo
Norway
011-47-22-855121 (Phone)
011-47-22-855035 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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

Luca Micheletto

University of Milan ( email )

Via Festa del Perdono, 7
Milan, 20122
Italy

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