Tax Amnesties In A Dynamic Model of Tax Evasion

Inés Macho‐Stadler, Pau Olivella and David Pérez‐Castrillo
Authors registered in the RePEc Author Service: David Perez-Castrillo and Ines Macho-Stadler

Journal of Public Economic Theory, 1999, vol. 1, issue 4, 439-463

Abstract: We present a dynamic model of tax evasion, where tax liabilities last for two periods and the probability of an inspection decreases with the sum of taxes evaded this period plus taxes evaded last period. We show that a tax amnesty that pardons more than the evasion penalties (an extensive amnesty) can temporarily improve compliance. Whenever the inspection technology improves, steady state compliance also improves, but the economy takes time to transit from one steady state to the other. We show that an amnesty may accelerate this transit, or even make it instantaneous if the amnesty is extensive enough.

Date: 1999
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