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Optimal Taxes on Wealth and Consumption in the Presence of Tax Evasion

Johann Brunner (), Susanne Pech () and Paul Eckerstorfer ()

No 2010-03, NRN working papers from The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria

Abstract: This article incorporates tax evasion into an optimum taxation framework with individuals differing in earning abilities and initial wealth. We find that despite the possibility of its evasion a tax on initial wealth should supplement the optimal nonlinear income tax, given a positive correlation between initial wealth and earning abilities. Further, even if income and initial wealth are taxed optimally, it is still desirable to levy a tax on commodities, though it can be evaded as well. Thus, our result provides a rationale for a comprehensive tax system. Optimal tax rates on commodities differ in general, however for the special case of a uniform evasion technology it turns out that equal rates are optimal if preferences are homothetic and weakly separable.

Keywords: Optimal Taxation; Tax Evasion (search for similar items in EconPapers)
JEL-codes: D82 H21 H24 H26 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
Date: 2010-03
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Related works:
Journal Article: Optimal taxes on wealth and consumption in the presence of tax evasion (2013) Downloads
Working Paper: Optimal Taxes on Wealth and Consumption in the Presence of Tax Evasion (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:jku:nrnwps:2010_03

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