Optimal dynamic tax evasion

We study optimal dynamic tax evasion in the framework proposed by Lin and Yang (2001) and Dzhumashev and Gahramanov (2011) with some modifications: a more flexible utility function, a more realistic audit process, and a penalty function which can be defined both on evaded income and evaded taxes. In the former case the elasticity between tax rate and tax evasion is positive, unless the subsistence consumption level is higher than a given threshold. In the latter case the relationship is usually negative , but the value of elasticity depends on the form of absolute risk aversion. In particular we show that for increasing relative risk aversion, for a tax rate higher than 50%, the elasticity may even become positive. US data are consistent with IRRA preferences.     

Sprumont's characterization of the uniform rule when all single-peaked preferences are admissible

Sprumont (1991) has established that the only allocation rule for the division problem that is strategy-proof, efficient, and anonymous is the uniform rule when the domain is the set of all possible profiles of continuous single-peaked preferences. Sprumont's characterization of the uniform rule is shown to hold on any larger domain of single-peaked preferences. Received: 15 December 1998 / Accepted: 12 April 1999     

Firm-level determinants of tax evasion in transition economies

Business tax evasion is an important issue for governments. Yet the factors that determine business tax evasion have not been sufficiently examined in the literature in general, and in transition contexts in particular. To address this gap, this study uses the WB/EBRD Business Environment and Enterprise Performance Survey (BEEPS) database with a sample of over 12,692 firms from 26 transition economies. Applying various modelling strategies, we argue that tax evasion is a function of firm-level and institutional-level variables. We contribute to the literature by providing robust evidence showing that the perceived tax burden has a positive impact on tax evasion. We also find that the tax evasive behaviour of firms is positively influenced by low trust in government and in the judicial system as well as by higher perceptions of corruption and higher compliance costs. We find that smaller firms, individual businesses and firms in sectors that are less visible to the tax administration are more likely to get involved in evasive behaviour. Overall, institutional factors play an important role in determining firms’ tax evasion behaviour in transition economies. This finding has important policy implications.     

Full pooling in multi-period contracting with adverse selection and noncommitment

This paper analyses multi-period regulation or procurement policies under asymmetric information between the regulator and regulated firms. As well known in the literature, some degree of separation is always optimal under any form of commitment. In contrast, we show that full pooling is optimal under noncommitment when the discount factor is sufficiently high. We also discuss the meaning of full pooling under double randomization. Finally, we provide a graphical analysis of the second-best policy in terms of the regulator's commitment capacity. Received: 4 December 1996 / 7 October 1999     

A characterization of the existenceof optimal dominant strategy mechanisms

This paper provides two theorems which characterize the domains of valuation functions for which there exist Pareto efficient and truth dominant strategy mechanisms (balanced Groves mechanisms). Theorem 1 characterizes the existence of balanced Groves mechanisms for a general class of valuation functions. Theorem 2 provides new balance-permitting domains of valuation functions by reducing the problem of solving partial differential equations to the problem of solving a polynomial function. It shows that a balanced Groves mechanism exists if and only if each valuation function in the family under consideration can be obtained by solving a polynomial function with order less than , where n is the number of individuals. Received: 5 January 1997 / Accepted: 25 May 1999     

A collective labor supply model with complementarities in leisure: Identification and estimation by means of panel data

We present a novel identification strategy for a collective labor supply model that allows for complementarities in leisure (i.e., individuals may enjoy leisure more in company of their spouse). Individual preferences and the Pareto weights (which capture the intra-household bargaining process) are identified by making use of panel data with couples and individuals who became a widow(er) in the observation period, along with the assumption that an individual's preferences can only change in a particular manner after the spouse's death. The change in preferences comes from changes in observable variables that can be controlled for (like mental health) and from the loss of the possibility to jointly enjoy leisure after the couple's dissolution. We apply the model to American households coming from the first nine waves of the Health and Retirement Study (1992-2008) and show that complementarities in leisure are indeed important when modeling spouses' labor supply choices.     

Capital indivisibility and tax competition: Are there too many business areas when some of them are empty?

In this paper, we propose a model where local jurisdictions must engage a development cost before competing for hosting a firm with uncertain preferences among possible sites. We first show that even an optimizing central planner managing all the jurisdictions develops more sites than there are plants to host. Doing so, he diversifies his supply and has a higher probability of hosting the firm. Then, we show that, if every jurisdiction is managed by a local government, there are more developed sites than with the central planner, which implies excess supply.     

Optimal deterministic contracting mechanisms for principal-agent problems with moral hazard and adverse selection

For the principal-agent problem with moral hazard and adverse selection we establish that within the collection of all measurable, deterministic contracting mechanisms satisfying the individual rationality and incentive compatibility constraints there exists one that is optimal for a risk averse principal contracting with a risk averse agent. In addition to demonstrating existence, one of the main contributions of the paper is to show that, in general, centralized contracting implemented via a contracting mechanism is equivalent to delegated contracting implemented via a contract menu. Thus, contracting can always be delegated to the agent without gain or loss to the principal. Based on this result, the existence of an optimal contracting mechanism for the principal-agent problem is established by showing that there exists an optimal contract menu for the equivalent delegated contracting problem. Received: 7 October 1994 / Accepted: 14 January 1997     

Distributional implications of informal economy in the EU countries: Accounting for the spread of tax evasion benefits and cultural characteristics

This study provides evidence about the impact of informal economy on income inequality by using annual cross-country panel data from 28 European Union countries observed during the period 2005–2017. Particular attention is dedicated to the cultural setting which is expected to impact taxpayers’ behaviour and thereby income distribution. The study reveals a relationship between the size of the underground economy and income inequality, which is negative when approaching domestic informality and positive when international tax evasion by individuals is related to the top-bottom income disparity. Moreover, a delay of one-year is needed for these effects to occur, sustaining the hypothesis of secondary consequences of the informality. The study also shows that a set of cultural peculiarities are relevant for the nexus of international tax evasion by individuals and income polarisation. The inequality enhancing effect of the offshore activities is larger in countries with high degree of uncertainty avoidance and power distance, and low level of indulgence and long-term orientation respectively.