Optimal income taxation with tax avoidance

Georges Casamatta

No 8608, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We follow the approach of Grochulski (2007), who determines the optimal income tax schedule when individuals have the possibility of avoiding paying taxes. We however modify his setup by considering a convex concealment cost function. This assumption violates the subadditivity property used in Grochulski (2007) and this has strong implications for the design of the tax schedule. This latter indeed shows that, with subadditivity, all individuals should declare their true income. Tax avoidance is thus not optimal. With a convex cost function, we find that a subset of individuals, located in the interior of the income distribution, should be allowed to avoid taxes, provided that the marginal cost of avoiding the first euro is suciently small. We also provide a characterization of the optimal income tax curve.

Keywords: Fiscal avoidance; Optimal income tax (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-acc, nep-cis, nep-iue, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP8608 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:8608

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP8608

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().