Income Tax Evasion and the Penalty Structure

Economics Bulletin, 2004, vol. 8, issue 5, pages 1-9

Abstract: In the Allingham-Sandmo (AS) model of tax evasion, fines are paid on evaded income, whereas in the Yitzhaki (Y) model fines are levied on evaded tax. This note compares the two models. In the Y model, evasion is higher and tax revenue lower than in the AS model. If government seeks to maximize expected tax revenue, it would prefer penalties of the AS type; if it maximizes expected voter welfare, it should choose Y type penalties. A voting model to determine the penalty structure is also considered.

Keywords: penalty schedule; tax evasion (search for similar items in EconPapers)
JEL-codes: H2 D7 (search for similar items in EconPapers)
Date: 2004 Written 2004-10-29
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