Trading Off Tax Distortion and Tax Evasion

Wolfram F. Richter () and Robin Boadway ()

No CESifo Working Paper No. 505, CESifo Working Paper Series from CESifo Group Munich

Abstract: Tax evasion is modeled as a risky activity and integrated into a standard problem of optimal tax design. It is shown that there is a trade off between reducing tax evasion and reducing tax distortion. Thus it is efficient to supplement a broad-based wage tax by a tax on specific consumption if the former is evaded and the latter not. The optimal tax structure can be characterized by an explicit formula.

Keywords: Tax evasion; risk-taking; optimal taxation (search for similar items in EconPapers)
JEL-codes: H21 H26 (search for similar items in EconPapers)
Date: 2001
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Journal Article: Trading Off Tax Distortion and Tax Evasion (2005)
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