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Public Provision of Private Goods, Self‐Selection, and Income Tax Avoidance
Author(s) -
Blomquist Sören,
Christiansen Vidar,
Micheletto Luca
Publication year - 2016
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12151
Subject(s) - taxable income , economics , earnings , labour economics , income tax , work (physics) , international taxation , public economics , labour supply , tax reform , finance , mechanical engineering , accounting , engineering
Redistributive taxation should benefit those with low earnings capacity rather than those who choose a lower income to obtain tax savings. Several contributions have highlighted how public provision of work complements can discourage people from lowering labor supply to diminish taxable income. We show how tax avoidance, previously neglected, can alter the conclusions regarding public provision. Tax avoidance breaks the link between labor supply and reported income. An agent reducing his reported income to escape taxes might no longer forego a publicly provided labor complement, because he can now lower his income by avoiding more rather than working less.