A note on the neutrality of profit taxes and tax compliance with imperfect detection

K. L. Glen Ueng () and Chiaen J. Wu ()
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K. L. Glen Ueng: Department of Public Finance, National Chengchi University
Chiaen J. Wu: Department of Public Finance, National Chengchi University

Economics Bulletin, 2009, vol. 29, issue 1, 312-318

Abstract: In a tax-evasion model with profit tax, we reexamine and clarify the issues of neutrality and separability with imperfect detection of tax fraud. With this more realistic setting, we show that the profit tax is not necessarily neutral and the separability conclusion may not hold. Furthermore, the property of non-neutrality may coexist with that of separability or inseparability. However, in contrast to the traditional conclusion, raising the audit probability may reduce the tax compliance when the property of inseparability is present.

JEL-codes: H0 H2 (search for similar items in EconPapers)
Date: 2009-03-11
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