Optimal income tax enforcement in the presence of tax avoidance

Authored by: Duccio Gamannossi degl’Innocenti , Matthew D. Rablen

The Routledge Companion to Tax Avoidance Research

Print publication date:  October  2017
Online publication date:  October  2017

Print ISBN: 9781138941342
eBook ISBN: 9781315673745
Adobe ISBN:


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The chapter develops an economic model of optimal auditing when taxpayers can choose both to evade and avoid tax. The model predicts that it is often more difficult – that is, more expensive to the tax authority – to induce compliance of wealthier taxpayers. Also, when the penalty increases at a steeper rate with evasion, a lower reported income indicates that the taxpayer’s preferred mix of avoidance and evasion is likely to have moved in favour of avoidance, because the competitiveness of the market for avoidance schemes increases, and the social stigma associated with tax non-compliance falls.

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