An Analysis of Optimal Taxation with Tax Evasion

Masatoshi Yamada

Public Finance = Finances publiques, 1990, vol. 45, issue 3, 470-90

Abstract: The problem of the optimal tax system in the presence of tax-evading behavior is analyzed. This paper provides the conclusion, assuming identical households and proportional income and sales taxes, that the optimum tax system depends critically on the households' attitude toward risk: the optimum may, depending on risk attitude, prescribe just one of the two taxes or a mix of the two. The problem of the optimal probability of auditing and penalty severity is also studied. Applicability and extension of the present analysis to other taxes are investigated as well.

Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:pfi:pubfin:v:45:y:1990:i:3:p:470-90

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