Tax evasion and Ricardian equivalence

This paper studies whether the Ricardian equivalence holds in a context with tax evasion. In such a context, the degree of uncertainty becomes endogenous since agents control the distribution of their future income through their income report. We find that Ricardian equivalence holds when proportional fines are imposed on evaded taxes, but does not hold when the fines are on the amount of unreported income. We also show that it is possible to explain the empirical negative relation between tax rates and declared income when the path of government spending remains unchanged.     

Tax evasion and labour supply

The total effect of a change in the probability of detection, or other parameters, on the level of tax evasion can be divided into three separate effects, only one of which is determinate.     

Tax morale and tax evasion reports

The study proposes a new measure of tax morale for Italy based on voluntary tax evasion reports. Using this measure, I detected a positive relationship between tax morale and social capital, political participation, and immigration, but a negative relationship between tax morale and the dissatisfaction with public services and unemployment.     

Tax competition in federations revisited

We extend Keen and Kotsogiannis (2002, 2004) by considering all-purpose public goods that are beneficial to both producers and consumers. Horizontal externality (resp. vertical externality) exerted by tax competition will not necessarily lead to inefficient outcomes.     

Tax competition with heterogeneous firms

A model of tax competition in which firms earn rents is described. The size of these rents, coupled with the degree to which the firms are foreign-owned, determine the equilibrium tax rates. The existence of rents significantly alters some generally accepted results involving the possibility of a Pareto-improving common tax rate and the underprovision of publicly provided goods.     

Tax competition, rent-seeking and fiscal decentralization

The present paper provides a basis for evaluating fiscal decentralization of expenditure and tax responsibilities, by encompassing the literature on tax competition and rent seeking. Both tax and rent seeking competitions are conceived of as being wasteful and self-defeating. We find that rent-seeking activities account for political distortions which may be mitigated in the process of fiscal decentralization, while tax competition results in economic distortions associated with decentralization. Welfare evaluation should be based on the balance of the political gain and the economic cost.     

税收竞争与政治学：双重激励再考察

1引言目前关于资本税收竞争方面的论著浩如烟海,但迄今为止,却鲜有人对税收竞争程度与确定税收的政治过程二者之间的相互作用做出系统分析。不过,Persson和Tabellini早在1992年就对这个问题提出了重要观点,他们强调,在存在税收竞争的情况下,一国投票者通常会通过选择候选人来实现其投票策略,候选人一旦执政将会对资本课以更高的税收,税负会高于中间投票人所意愿的税负。在他们的模型中,假设候选人占有的资本要素少于中间投     

Tax competition and the creation of redundant products

Abstract.  There are products that are assembled from kits but that, once assembled, are identical to other products. An example is the roll-your-own cigarette. Because the kit requires time to assemble, it is more costly than the assembled product; in the absence of tax competition, the kit is not bought or is 'redundant.' I show that tax competition between regions supports strategies that tax the 'redundant' product at a lower tax rate than its assembled counterpart, and it is bought. A welfare loss is thereby created. JEL classification: H71     

Tax competition for foreign direct investment under information uncertainty

The relation between taxation states and foreign direct investment (FDI) has been studied from several perspectives and with states at different levels of development. Most previous studies, however, have only considered the impact of tax level on FDI volume. This paper enhances this view by assuming that multinational enterprises (MNEs) can use transfer prices systems and have investment timing flexibility. Thus, it evaluates the impact of the use of international transfer pricing systems on state policy and on the investment timings of MNEs. In uncertain business environments (with the periodic releases of news), investment can increase if MNEs delay investment decisions. This paper shows how tax differentials can attract FDI and can influence MNE behavior. The equilibrium is set in a global environment where MNEs can shift their profits between states depending on local corporate tax rates. Assuming the use of transfer pricing schemes, this paper confirms the relationship between MNE behavior and the release of business news.     

Tax competition for foreign direct investments and the nature of the incumbent firm

We investigate tax/subsidy competition for foreign direct investments (FDI) between countries of different size when a domestic firm is the incumbent in the largest market and we study how the nature (public or private) of the incumbent firm affects policy competition. We show that, differently from the case of a private firm, the country hosting the incumbent always benefits from FDI if the domestic firm is a public welfare‐maximizing firm. We also show that the public firm acts as a disciplinary device for the foreign multinational that will always choose the efficient welfare‐maximizing location. An efficiency‐enhancing role of policy competition may then arise only when the domestic incumbent is a private firm, whereas tax competition is always wasteful in the presence of a public firm.     

Tax evasion in transition: Outcome of an institutional clash? Testing Feige's conjecture in Albania

A field survey of households was conducted in Tirana, Albania in 2000. A response rate of 89.3% yielded 1.340 valid questionnaires, allowing me to test Feige's (In: Nelson, J.M., Tilley, C., Walker, L. (Eds.), Transforming Post-communist Political Economics. National Academy Press, Washington, DC, p. 21) conjecture that more tax evasion will be observed, when formal and informal institutions clash. Respondents’ attitudes towards formal and informal institutions were obtained by applying factor analysis to their responses to a series of attitudinal questions. The theoretical importance of the interaction between formal and informal institutions in determining tax evasion finds empirical support in the data.     

Tax competition,tax coordination and tax harmonization: The effects of EMU

There is little doubt that the step towards a monetary union in Europe will increase both the distorionary effects of existing differences in national tax systems and the intensity of tax competition for internationally mobile commodity and factor tax bases. This paper discusses selected issues of commodity and capital tax coordination that are likely to be affected by monetary unification. Starting from the distortive present scheme of value-added taxation in Europe we first analyze the effects of a switch to a general origin-based VAT as a way to maintain national tax rate autonomy over this important tax base. While an origin-based VAT would neither distort trade flows — both within the EU and with third countries — nor investment decisions in the long-run, its short-run effects are likely to be severe in the absence of exchange rate flexibility. In the field of capital taxation the focus switches to the feasibility of regional harmonization measures when there is no cooperation with the rest of the world. We argue that in a monetary union the mobility costs of capital will be significantly lower within the EU as compared to outside investments. This provides an efficiency argument for minimum source taxes on both interest income and corporate profits even if cooperation with third countries is infeasible.     

Tax competition and the political economy of public employment: a model for Austria

In this work, we simulate the effects of the tax autonomy of the Austrian states on the levels of public employment in each state. We show that depending on the strength of the public sector lobby, tax autonomy would require a reduction of employment in the public sector of between 25 and 35% of the current level. We also show that tax autonomy increases welfare levels by 1–1.5%; that is, the positive change in the disposable income of the workers more than offsets the welfare loss resulting from the lower provision of public goods. Finally, we show that the reduction of public employment is superior in terms of welfare to an alternative scenario in which employment levels are held constant but the wage levels in the public sector are adjusted.     

Joint tax evasion

Tax evasion analysis typically assumes that evasion involves individual taxpayers responding to some given policies. However, evading taxes could require the collaboration of at least two taxpayers. Detection depends on the costly avoidance activities of both transacting partners. An increase in sanctions leads to a direct increase in the expected cost of a transaction in the illegal sector, but it may also increase the incentive for the partners to cooperate in avoiding detection. The total cost of transacting in the illegal sector can fall, and tax evasion may increase. The policy implications of this phenomenon are considered. JEL Classification: H26
L'évasion fiscale collective. Dans les analyses de l'évasion fiscale, on suppose habituellement que le payeur de taxe fait face à un ensemble donné de politiques auxquelles il réagit. Pourtant, dans le cas des transactions marchandes, l'évasion fiscale n'est possible que si plusieurs agents coopèrent ensemble. La probabilité que l'évasion soit détectée dépend alors des efforts que chacun fait pour la cacher. Dans un tel contexte, de plus lourdes sanctions accroissent le coût espéré des transactions illégales, mais peuvent aussi, indirectement, accroître l'incitation pour les partenaires à coopérer pour cacher leur activité illégale. Il en résulte que le coût total des transactions illégales peut diminuer et l'évasion fiscale augmenter. Nous étudions les implications de ce phénomène.     

Economic growth,corruption and tax evasion

In this paper, we explore tax revenues in a regime of widespread corruption in a growth model. We develop a Ramsey model of economic growth with a rival but non-excludable public good which is financed by taxes which can be evaded via corrupt tax inspectors. We prove that the relationship between the tax rate and tax collection, in a dynamic framework, is not unique, but is different depending on the relevance of the “shame effect”. We show that in all three cases — “low, middle and high shame” countries, the growth rate increases as the tax rate increases up to a threshold value, after which the growth rate begins to decrease as the tax rate increases. But, for intermediate tax rates, the rate of growth for “low shame” countries is lower than that of “uniform shame” countries which is, in turn, lower than that of “high shame” countries. This happens because the growth rate is more sensitive to variations of t in an honest country rather than in a corrupt country.     

Indeterminacy, underground activities and tax evasion

This paper introduces underground activities and tax evasion into a one-sector dynamic general equilibrium model with aggregate external effects. The model presents a novel mechanism driving the self-fulfilling prophecies, which is characterized by well behaved (downward sloping) labor demand schedules. This mechanism differs from the customary one, and it is complementary to it. Compared to traditional labor market income, the income derived from underground labor activity is subject to a lower expected tax rate when considering both the probability of detection and the evasion penalty. During a belief-driven expansion, the household allocates more time to both traditional and underground labor supply. In equilibrium, this action serves to lower the effective labor tax rate faced by the household, thus providing stimulus to aggregate labor supply so as to make the initial expansion self-fulfilling. The mechanism here is akin to a “regressive tax”; the household's effective tax rate depends negatively on the level of total labor income. We argue that an underground sector, and the associated tax evasion, offer a good economic rationale for a regressive tax rate.     

Local interaction in tax evasion

When individuals underreport their incomes, they take into account their private gains and moral losses, the latter depending on the acquaintances’ previous underreports. We prove that under quite natural assumptions the process globally converges to the symmetric steady state.     

Two comments on tax evasion

A simple theoretical model of tax evasion behaviour is used to analyse whether a large fine (with small probability of detection) is a more powerful deterrent to tax evasion than a high probability of detection (with a small penalty). The effect of a higher tax rate on the amount of tax escaping the tax collector is also examined.     

Entrepreneurial innovations,competition and competition policy

We construct a model where an entrepreneur can innovate for entry or for sale. It is shown that increased product market competition tends to increase the relative profitability of innovation for sale. Increased competition not only reduces the profits of entrants and the acquirer of the inventions in a similar fashion, but also reduces the profit of non-acquirers. Therefore, incumbents' valuations of innovations are less negatively affected by increased competition, and the incentive for innovation for sale can increase with increased competition. Moreover, a stricter, but not too strict, merger policy is shown to increase the incentive for innovations for sale by ensuring the bidding competition for the innovation.