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Tax Amnesties In A Dynamic Model of Tax Evasion
Author(s) -
MachoStadler Inés,
Olivella Pau,
PérezCastrillo David
Publication year - 1999
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/1097-3923.00020
Subject(s) - tax evasion , amnesty , evasion (ethics) , economics , compliance (psychology) , tax credit , indirect tax , monetary economics , tax reform , microeconomics , public economics , law , political science , medicine , psychology , social psychology , immune system , immunology , human rights
We present a dynamic model of tax evasion, where tax liabilities last for two periods and the probability of an inspection decreases with the sum of taxes evaded this period plus taxes evaded last period. We show that a tax amnesty that pardons more than the evasion penalties (an extensive amnesty) can temporarily improve compliance. Whenever the inspection technology improves, steady state compliance also improves, but the economy takes time to transit from one steady state to the other. We show that an amnesty may accelerate this transit, or even make it instantaneous if the amnesty is extensive enough.