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Jointly Optimal Taxes and Enforcement Policies in Response to Tax Evasion
Author(s) -
Pestieau Pierre,
Possen Uri M.,
Slutsky Steven M.
Publication year - 2004
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/j.1467-9779.2004.00169.x
Subject(s) - evasion (ethics) , economics , enforcement , tax evasion , revenue , government (linguistics) , audit , public economics , tax revenue , government revenue , distribution (mathematics) , microeconomics , finance , accounting , biology , mathematical analysis , linguistics , philosophy , immune system , mathematics , immunology , ecology
Assuming the government cannot fully observe either individual types or incomes and jointly picks optimal taxes and audit policies against evasion can significantly alter standard results from optimal income taxation and tax‐evasion models, which treat these separately. We consider this when individuals differ in their risk preferences and incomes. Given the resulting complexity, supplementing analytic results with numerical analysis helps explain the structure of the resulting policies and how they change when the distribution of income or the revenue requirements of the government change. We do this analysis with and without audit errors and with incomes exogenous or affected by occupational choice.