Welfare and Inequality with Hard-to-Tax Markets

Marcelo Arbex, Enlinson Mattos and Laudo M. Ogura ()
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Laudo M. Ogura: Economics Department, Grand Valley State University

No 1403, Working Papers from University of Windsor, Department of Economics

Abstract: Tax enforcement costs constrain the government's ability to observe economic activities, giving rise to hard-to-tax (HTT) markets. In this paper, we develop a Hotelling-type spatial model of sales taxation to analyze the welfare and distributional effects of the existence of HTT transactions. We show that an economy with HTT markets suffers from lower provision of public goods not only due to higher marginal cost of taxation, but also because (i) the planner might be concerned about the inequality in consumption caused by the unequal taxation across markets and (ii) the tax base might be over-extended to allow for a more inclusive taxation.

Keywords: Sales tax; Tax evasion; Hard-to-tax markets; Public good provision. (search for similar items in EconPapers)
JEL-codes: H1 H21 H26 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2014-10
New Economics Papers: this item is included in nep-iue, nep-pbe and nep-pub
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http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1403.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Welfare and Inequality with Hard-to-Tax Markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:wis:wpaper:1403

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