Tax evasion, concealment and the optimal linear income tax

Helmuth Cremer, Firouz Gahvari

Research output: Contribution to journalArticlepeer-review

Abstract

This paper incorporates tax evasion into the analysis of optimal linear income taxation. Tax- evaders can influence the probability of being caught, if audited, through expenditures on concealment. It is proved that tax evasion can make a given tax system more as well as less progressive depending on the "concealment technology". The paper derives and interprets simple formulas for characterizing the optimal tax rate and audit probability. It also gives sufficient conditions under which tax evasion lowers the optimal tax rate, while showing that an increase in the optimal tax rate is also possible.
Original languageEnglish (US)
Pages (from-to)219-239
JournalScandinavian Journal of Economics
Volume96
Issue number2
DOIs
StatePublished - 1994

Keywords

  • tax evasion
  • income taxes
  • optimal taxation
  • tax audits
  • taxpaying
  • progressive taxation
  • social welfare
  • marginal tax rate
  • average tax rate

Fingerprint Dive into the research topics of 'Tax evasion, concealment and the optimal linear income tax'. Together they form a unique fingerprint.

Cite this