Tax policy design in a hierarchical model with occupational decisions

Sebastián Castillo Ramos

International Tax and Public Finance, 2024, vol. 31, issue 5, No 6, 1295-1341

Abstract: Abstract This research examines the impact of occupational choices and tax evasion on the tax administration policy in a hierarchical tax model. The economy has two sectors, wage-earners and self-employment, with evasion only possible in the latter. Incorporating occupational decisions produces a smaller marginal tax rate and a larger budget for the IRS. However, the resources are still insufficient to audit all self-employed, resulting in distortions in occupational choices favoring self-employment. These distortions prevent production efficiency from achieving the optimum level, indicating that the Diamond-Mirrlees theorem is not applicable in this context. Finally, applying differential taxation represents a Pareto improvement, but it results in higher taxes for self-employment.

Keywords: Tax evasion; Tax policy; Auditing; Income taxation; Occupational choice; Production efficiency (search for similar items in EconPapers)
JEL-codes: H21 H26 H83 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10797-023-09806-9 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Tax Policy Design in a Hierarchical Model with Occupational Decisions (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:itaxpf:v:31:y:2024:i:5:d:10.1007_s10797-023-09806-9

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/10797/PS2

DOI: 10.1007/s10797-023-09806-9

Access Statistics for this article

International Tax and Public Finance is currently edited by Ronald B. Davies and Kimberly Scharf

More articles in International Tax and Public Finance from Springer, International Institute of Public Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().