Tax Aversion, Optimal Tax Rates, and Indexation

Roger Waud

No 2643, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Taking account of the costs of tax evasion and avoidance activity together with the government's costs of tax enforcement it is shown that the optimal point on a stylized Laffer curve is located on the positively sloped region, not at the maximum point of the, curve. The analysis eschews the usual supply-side-type rationale for the Laffer curve and shows that such a curve can arise solely as a consequence of the optimizing tax aversion activity of a utility maximizing economic agent. The analysis further implies that indexation to inflation may be warranted by considerations of economic efficiency.

Date: 1988-07
Note: PE ME
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Published as Public Finance, Vol. 43, No. 2, pp. 310-325, (1988).
Published as Waud, Roger N, 1988. "Tax Aversion, Optimal Tax Rates, and Indexation," Public Finance = Finances publiques, , vol. 43(2), pages 310-25.

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