Income tax buyouts and income tax evasion

Laszlo Goerke

International Tax and Public Finance, 2015, vol. 22, issue 1, 120-143

Abstract: A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto improving. Copyright Springer Science+Business Media New York 2015

Keywords: Asymmetric information; Revenues; Self-selection; Tax buyouts; Tax evasion; D 82; H 21; H 24; H 26 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Working Paper: Income Tax Buyouts and Income Tax Evasion (2014)
Working Paper: Income Tax Buyouts and Income Tax Evasion (2014)
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DOI: 10.1007/s10797-013-9302-z

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