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On inequality tax evasion and progressive taxes

Lahiri, Radhika & Phoon, Mark (2010) On inequality tax evasion and progressive taxes. In Southern Workshop in Macroeconomics, 19-20 March 2010, The University of Auckland, New Zealand. (Unpublished)

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Abstract

This paper proposes a simple variation of the Allingham and Sandmo (1972) construct and integrates it to a dynamic general equilibrium framework with heterogeneous agents. We study an overlapping generations framework i n which agents must initially decide whether to evade taxes or not. In the event they decide to evade, they then have to decide the extent of income or wealth they wish to under-report. We find that in comparison with the basic approach, the ‘evade or not’ choice drastically reduced the extent of evasion in the economy. This outcome is the result of an anomaly intrinsic to the basic Allingham and Sandmo version of the model, which makes the evade-or-not extension a more suitable approach to modelling the issue. We also find that the basic model, and the model with and ‘evade-or-not’ choice have strikingly different political economy implications, , which suggest fruitful avenues of empirical research.

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ID Code: 38288
Item Type: Conference Paper
Keywords: Tax evasion, Inequality, Political economy, Income redistribution
Subjects: Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > Economic Theory (140100) > Macroeconomic Theory (140102)
Australian and New Zealand Standard Research Classification > ECONOMICS (140000) > APPLIED ECONOMICS (140200) > Public Economics- Taxation and Revenue (140215)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Economics & Finance
Copyright Owner: Copyright 2010 the authors.
Deposited On: 08 Nov 2010 09:42
Last Modified: 06 Jan 2011 00:01

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