Optimal income taxation with tax avoidance

Georges Casamatta ()
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Georges Casamatta: LISA - Laboratoire « Lieux, Identités, eSpaces, Activités » (UMR CNRS 6240 LISA) - CNRS - Centre National de la Recherche Scientifique - Università di Corsica Pasquale Paoli [Université de Corse Pascal Paoli]

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Abstract: We determine the optimal income tax schedule when individuals have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we find that a subset of individuals, located in the interior of the income distribution, should be allowed to avoid taxes, provided that the marginal cost of avoiding the first euro is sufficiently small. This contrasts with the results of Grochulski (2007) who shows that, with a subadditive cost function, all individuals should declare their true income. We also provide a characterization of the optimal income tax curve.

Date: 2021-06
New Economics Papers: this item is included in nep-isf, nep-iue, nep-ore and nep-pbe
Note: View the original document on HAL open archive server: https://hal.science/hal-03089241v1
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Published in Journal of Public Economic Theory, 2021, ⟨10.1111/jpet.12495⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03089241

DOI: 10.1111/jpet.12495

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