Optimal Tax Administration Responses to Fake Mobility and Underreporting

Alejandro Esteller-Moré (aesteller@ub.edu) and Umberto Galmarini (umberto.galmarini@uninsubria.it)
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Alejandro Esteller-Moré: Universitat de Barcelona & IEB
Umberto Galmarini: Università dell’Insubria & IEB

No 2023/03, Working Papers from Institut d'Economia de Barcelona (IEB)

Abstract: In a two-country model, the citizens of a ‘big home country’ can either fictitiously move residence to a ‘small foreign country’ where residence-based taxes are lower (external tax avoidance), or under-report the tax base at home (internal tax avoidance). Tax setting is the result of Cournot-Nash competition between revenue maximizing governments, with the home government also setting two types of administration policies, one for each form of tax avoidance. We show that although it is optimal to employ both types of administration policies, which in themselves are both effective at tackling the targeted form of tax avoidance, the optimum is characterized by a tradeoff in terms of policy outcomes: either internal avoidance increases and external avoidance decreases, or the opposite, depending on the characteristics of the fiscal environment.

Keywords: Personal taxation; Residence principle; Tax avoidance; Tax competition; Tax administration; Tax havens; Taxation of the rich; Leviathan governments (search for similar items in EconPapers)
JEL-codes: H21 H24 H26 H73 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2023
New Economics Papers: this item is included in nep-acc, nep-des, nep-gth, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:ieb:wpaper:doc2023-03

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