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A Tax Evasion Model with Allowance for Retroactive Penalties *
Author(s) -
RICKARD J. A.,
RUSSELL A. M.,
HOWROYD T. D.
Publication year - 1982
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1982.tb00389.x
Subject(s) - allowance (engineering) , evasion (ethics) , tax evasion , economics , deterrence (psychology) , investment (military) , deterrence theory , microeconomics , public economics , law and economics , operations management , law , political science , medicine , immune system , politics , immunology
Discrete models of tax evasion are considered when evasion has occurred over a period of several years. Allowance is made for growth in income, investment of illicit gains from successful evasion, and the imposition of retroactive penalties. Retroactive penalties increase deterrence of evasion if introduced at a point where evasion has been continuing for some years, since the utility gain from continuing successful evasion is unaffected, whereas the utility loss will be increased regardless of attitude to risk. Prohibitive penalty rates are determined, and a range of penalty rates are given in which some dishonest taxpayers may become honest. The formulation of the basic model and consequent conclusions are relevant to the current Australian taxation scene.