Tax Amnesties as Asset Laundering Devices

Arindam Das-Gupta and Dilip Mookherjee

Boston University - Institute for Economic Development from Boston University, Institute for Economic Development

Abstract: Tax amnesties are frequently offered by governments to induce citizens to voluntarily declare black assets accumulated from past tax evasion, especially in developing countries with a large ,underground' economy. The resulting switch in a citizen asset portfolios in favor of white assets could conceivably enhance compliance following the amnesty. In contrast, if the amnesty is anticipated then it is likely to lower compliance in pre-amnesty years. A dynamic model of tax compliance confirms these conjectures under plausible assumptions, but finds that the effects on net revenue collections from an amnesty may diverge substantially from the effects on compliance. For instance, if the pre-tax rate of return on black assets is higher than on white assets, and taxpayers are risk neutral, then an unanticipated amnesty is shown to lower aggregate net revenues following the amnesty, owing to lowered collection from penalties. On the other hand, positive revenue effects may result from an anticipated amnesty, though such outcomes can be ruled out if black asset stocks are large relative to white, and enforcement is weak. Myopic governments who place a high value on current vis-a-vis future revenues may still declare amnesties as revenue gains from increased compliance are visible and immediate, while reduced collections from penalties are invisible and stretched out into the future. Alternative justifications may be sought in improved risk-sharing between evaders and the government, or resulting economies in prosecution costs, but these require the government to possess detailed information concerning distributions over citizen characteristics in order the set the amnesty rates correctly.

Date: 1995-12
References: Add references at CitEc
Citations: View citations in EconPapers (1)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Tax Amnesties as Asset-Laundering Devices (1996)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fth:bosecd:69

Access Statistics for this paper

More papers in Boston University - Institute for Economic Development from Boston University, Institute for Economic Development Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Krichel ().