Who participates in tax amnesties? Self-selection of risk-averse taxpayers

Carla Marchese () and Fabio Privileggi

POLIS Working Papers from Institute of Public Policy and Public Choice - POLIS

Abstract: In this paper we model taxpayer participation in an unanticipated tax amnesty which can be entered by paying a fixed amount. Taxpayers are characterized by a Constant Relative Risk Aversion (CRRA) utility function and differ in relative risk aversion coefficient and in income. With minor changes the same model also describes a FATOTA (Fixed Amount of Taxes or Tax Audit) system. Our results show that amnesties may fail as a self-selective device to fully separate large-scale from small-scale tax evaders and to extract resources from the former. Only taxpayers whose relative risk aversion falls within a given interval participate, while those whose evasion is too small or too large do not enter. The model is used to estimate relative risk aversion and tax evasion of participants in the 1991 and 1994 Italian income tax amnesties.

Keywords: tax amnesty; tax evasion; relative risk aversion; self-selection (search for similar items in EconPapers)
JEL-codes: D89 H26 K42 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2001-10
New Economics Papers: this item is included in nep-eec, nep-law, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:uca:ucapdv:21

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