Optimal income taxation with tax avoidance and endogenous labor supply

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], TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique

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Abstract: We determine the optimal income tax schedule when individuals both choose endogenously their labor supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we propose a formula for the optimal marginal tax rate, that generalizes the formula of the standard Mirrlees model to the case of tax avoidance. We also show that the results obtained by Casamatta (2021) in the fixed income case hold true when labor supply is endogenous: with a low enough marginal cost of avoidance, it is optimal to let some taxpayers, located in the interior of the skill distribution, avoid taxes.

Keywords: Labor supply; Tax avoidance; Optimal income taxation (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-iue and nep-pbe
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Published in Canadian Journal of Economics / Revue Canadienne d'Économique, 2023, 56 (3), pp.913-939. ⟨10.1111/caje.12675⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04015963

DOI: 10.1111/caje.12675

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