Income Tax Buyouts and Income Tax Evasion

Laszlo Goerke

No 201401, IAAEU Discussion Papers from Institute of Labour Law and Industrial Relations in the European Union (IAAEU)

Abstract: A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto-improving.

Keywords: Asymmetric information; Revenues; Self-selection; Tax buyouts; Tax evasion (search for similar items in EconPapers)
JEL-codes: D82 H21 H24 H26 (search for similar items in EconPapers)
Date: 2014-01
New Economics Papers: this item is included in nep-acc, nep-cta, nep-iue, nep-pbe and nep-pub
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Related works:
Journal Article: Income tax buyouts and income tax evasion (2015)
Working Paper: Income Tax Buyouts and Income Tax Evasion (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:iaa:dpaper:201401

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