Tax Optimization under Tax Evasion: The Role of Penalty Constraints

Vasin Alexander () and Vasina Polina ()

EERC Working Paper Series from EERC Research Network, Russia and CIS

Abstract: This paper considers the problem of determining the optimal taxation for a group of individuals with random, independent and identically distributed incomes. Because a taxpayer's income is private information, it can only be verified through a costly audit. The purpose of this paper is to characterize the optimal tax schedule and auditing strategy that maximizes the government's net tax revenue under certain participation constraints that are related to the interests of the taxpayers. The authors determine the optimal evasion-proof strategy, depending on the penalty constraint. They show that under certain conditions, tax evasion may increase net tax revenue, but typically the optimal government strategy is evasion-proof.

Keywords: Russia; optimal tax schedule; penalty constraint; evasion-proof strategy (search for similar items in EconPapers)
JEL-codes: C70 C72 H26 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2002-08-16
New Economics Papers: this item is included in nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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