Optimal income taxation with tax avoidance and endogenous labor supply

George Casamatta ()
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George Casamatta: Laboratoire Lieux, Identités, eSpaces et Activités (LISA)

No 17, Working Papers from Laboratoire Lieux, Identités, eSpaces et Activités (LISA)

Abstract: We determine the optimal income tax schedule when individuals both determine endogenously their labor supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we propose a formula for the optimal marginal tax rate, that generalizes the standard Mirrlees formula to the case of tax avoidance. We also show that the results obtained by (2020) in the fixed income case hold true when labor supply is endogenous: with a low enough marginal cost of avoidance, part of the taxpayers, located in the interior of the skill distribution, optimally choose to avoid taxes.

Keywords: tax avoidance; optimal income taxation (search for similar items in EconPapers)
JEL-codes: H21 H26 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2020-06
New Economics Papers: this item is included in nep-iue, nep-ore, nep-pbe and nep-pub
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https://umrlisa.univ-corse.fr/RePEc/lia/pdf/WorkingPaper17.pdf First version, 2020 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:lia:wpaper:017

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