Tax Aggressiveness of Taxpayers with Heterogeneous Income and Uncertainty about Taxable Income

Markus Diller and Johannes Lorenz

FinanzArchiv: Public Finance Analysis, 2015, vol. 71, issue 4, 506-530

Abstract: We propose a tax aggressiveness game that deals with the strategic interaction between taxpayers and the tax authorities. Although aware of their true income, taxpayers face uncertainty concerning their taxable income. We distinguish three settings where differences between reported income and taxable income are either not punished, punished symmetrically, or punished asymmetrically, respectively. We find that tax aggressiveness can be best reduced by introducing an asymmetric penalty scheme. In this case increasing tax uncertainty increases tax compliance further. The fiscal authority benefits from uncertainty to the detriment of the taxpayer. Taxpayers with low income suffer more from an increase in uncertainty than taxpayers with high income.

Keywords: tax aggressiveness; legal uncertainty; tax law; game theory (search for similar items in EconPapers)
JEL-codes: C72 H20 H26 K34 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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DOI: 10.1628/001522108X14468039983521

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