Minimum taxation as a luxury good

Maurizio Caserta and Francesco Reito ()

Economia Politica: Journal of Analytical and Institutional Economics, 2015, vol. 32, issue 3, 310 pages

Abstract: This paper investigates the use of minimum tax thresholds to avoid income tax evasion. We analyze a moral-hazard model in which, given the endogenous audit probability, taxpayers may choose to comply or not with their tax obligation. The main result is that the imposition of a minimum tax, whereby taxpayers need to pay a tax on wealth no lower than a certain amount, can be Pareto efficient. The result hinges upon a critical level of wealth endowment: wealthy economies should ask for a minimum tax payment from all taxpayers; poor economies should only rely on income taxation, and allow taxpayers to be able to get away with their tax obligations. Minimum taxation, therefore, is like a luxury good and only rich economies can afford it. Copyright Springer International Publishing Switzerland 2015

Keywords: Tax evasion; Minimum tax; Moral hazard; D81; L14; O12 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1007/s40888-015-0015-x

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