Tax Rate Cuts and Tax Compliance--The Laffer Curve Revisited

Takáts, Elöd and Papp, Tamás K.
Authors registered in the RePEc Author Service: Elod Takats

No 08/7, IMF Working Papers from International Monetary Fund

Abstract: The paper shows how tax rate cuts can increase revenues by improving tax compliance. The intuition is that tax evasion has externalities: tax evaders protect each other, because they tie down limited enforcement capacity. Thus, relatively small tax rate cuts, which decrease incentives to evade taxes, can lead to increased revenues through spillovers - creating Laffer effects. Interestingly, tax rate cuts here imply increasing effective taxes. The model is consistent with what happened in Russia, and may provide basis for further thinking about tax rate cuts in other countries.

Keywords: Tax evasion; Russian Federation; Tax revenues; Taxes (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-pub and nep-tra
Date: 2008-01-11
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