TY  - JOUR
CY  - Oxford
ID  - publications47789
UR  - http://tse-fr.eu/pub/128049
IS  - n° 1
A1  - Canta, Chiara
A1  - Cremer, Helmuth
A1  - Gahvari, Firouz
N2  - We study optimal income taxation in a two-group framework where the private cost of misreporting income is positively correlated with productivity. We show that, if high-wage types always reveal their income truthfully, letting low-wage types cheat would lead to Pareto-superior outcomes regardless of the audit costs (as compared to deterring them). When there is no cheating, redistribution takes place on first- or second-best frontiers with the low-wage types always ending up worse off than the high-wage types. Letting low-wage types conceal their income reduces the need to recourse to second-best mechanisms for redistribution. Additionally, it increases the reach of first-best redistribution to outcomes at which low-wage types are better off than high-wage types.
VL  - vol. 126
TI  - Welfare-improving tax evasion
AV  - public
EP  - 126
Y1  - 2024/01//
PB  - Blackwell
JF  - Scandinavian Journal of Economics
KW  - Optimal taxation, tax evasion, audits, welfare-improving
SN  - 1467-9442
SP  - 98
ER  -