The tax rebate trade-off

Salvatore Ciucci

No 376267, FEEM Working Papers from Fondazione Eni Enrico Mattei (FEEM)

Abstract: This study extends the theory of tax evasion by presenting a model of collaborative tax evasion between buyers and sellers. Buyers differ only in their level of tax morale, and tax evasion occurs when the seller fails to issue a receipt for the transaction. To counteract this, the government can disrupt the collusion between sellers and buyers by offering a tax rebate to buyers who request and retain the transaction receipt. The theoretical findings show that the tax rebate introduces a policy trade-off for the government between aggregate quantity and tax revenue. Furthermore, the marginal effect of the rebate on aggregate quantity, tax revenue, and social welfare is ambiguous. This study provides a theoretical foundation for understanding and managing the economic inefficiencies that may arise from tax rebate policies.

Keywords: Political Economy; Public Economics (search for similar items in EconPapers)
Pages: 26
Date: 2025-11-14
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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemwp:376267

DOI: 10.22004/ag.econ.376267

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