Seminar Papers, Institute for International Economic Studies, Stockholm University
No 721:
Tax Evasion Dynamics
Dirk Niepelt ()
Abstract: I study the dynamic tax evasion program of a household
with many sources of income. Contrary to the previous literature, I assume
that the detection risk of tax evasion is uncorrelated across these
sources. If detection triggers the repayment of currently and previously
evaded taxes, the marginal cost of evasion increases over time and the
optimal duration of evasion is positive but finite. With stochastic pre-tax
income, the fraction of aggregate taxes evaded remains interior, even if
detection triggers duration-independent penalties. The model helps to
understand the recent European debate about the cross-border exchange of
information about capital income as opposed to taxation at the source. It
yields a transparent representation of the revenue and efficiency losses
due to tax evasion and highlights various effects of tax policy on
evasion.
Keywords: Tax evasion; hysteresis; inaction range; optimal taxation; information exchange; (follow links to similar papers)
JEL-Codes: E60; H20; (follow links to similar papers)
29 pages, July 8, 2003
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- This paper is published as:
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Niepelt, Dirk, (2005), 'Timing Tax Evasion', Journal of Public Economics, Vol. 89, September, No. 9-10, pages 1611-1637
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