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Welfare improving tax evasion

Canta, Chiara, Cremer, Helmuth and Gahvari, Firouz (2020) Welfare improving tax evasion. TSE Working Paper, n. 20-1121, Toulouse

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We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing low-productivity types to cheat leads to Pareto-superior outcomes as compared to deterring
them, even if audits can be performed costlessly. When there is no cheating, redistribution
takes place on first- and second-best frontiers and can never make low-ability types more well-off than high-ability types. Letting low-ability types cheat allows first-best redistribution up to a limit at which low-ability types are better off than high-ability types.

Item Type: Monograph (Working Paper)
Language: English
Date: July 2020
Place of Publication: Toulouse
Uncontrolled Keywords: Optimal taxation, tax evasion, audits, welfare-improving.
JEL Classification: H20 - General
H21 - Efficiency; Optimal Taxation
H26 - Tax Evasion
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 08 Jul 2020 15:26
Last Modified: 08 Jul 2020 15:26
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