The Design of Commodity Taxes in the Presence of Tax Evasion With Illustrative Evidence From India

Ranjan Ray

Public Finance Review, 1998, vol. 26, issue 5, 503-518

Abstract: This article analyzes the impact of tax evasion in the optimal commodity tax model with heterogeneous individuals. A recent model of indirect tax evasion is applied to the many-person case. Indian data show that sales underreporting has a major impact on tax design, and makes the optimal commodity taxes more redistributive. Thus, tax evasion plays a role similar to that of inequality aversion in traditional tax calculations. The tax evasion parameter is endogenized and shown to be nonuniform across items. The article also introduces a framework that allows simultaneous analysis of commodity and income tax evasion.

Date: 1998
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:26:y:1998:i:5:p:503-518

DOI: 10.1177/109114219802600505

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