Taxing hard-to-tax markets

Marcelo Arbex, Enlinson Mattos and Laudo M. Ogura

No 355, Textos para discussão from FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil)

Abstract: Tax enforcement costs constrain the government s ability to observe economic transactions, giving rise to hard-to-tax (HTT) markets. In these markets transactions are untaxed and consumers are better o¤ than in taxed markets. This paper studies a novel approach to combat evasion in HTT markets: consumer auditing, which rewards consumers for re- questing transaction receipts. We develop a Hotelling-type spatial model of sales taxation to analyze the welfare and distributional e¤ects of the implementation of this policy. We and that consumer auditing allows for a lower tax rate and greater provision of the public good in the economy. We show that this policy not only can enhance welfare, but also equalize utilities of consumers across markets

Date: 2014-02-12
New Economics Papers: this item is included in nep-acc, nep-iue and nep-pub
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Related works:
Working Paper: Taxing Hard-to-Tax Markets (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:fgv:eesptd:355

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