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on Informal and Underground Economics |
| By: | Marcelo Arbex (Department of Economics, University of Windsor); Enlinson Mattos (São Paulo School of Economics, Getulio Vargas Foundation) |
| Abstract: | Limited tax capacity creates evasion opportunities that weakens the production efficiency argument. Motivated by the SIMPLES tax reform in Brazil that led to heterogeneous responses on revenues and production costs of upstream versus downstream informal firms, we characterize the optimal taxation of firms in a limited tax capacity economy to compare with the optimal value-added and turnover taxes. We show that the elasticities of misreported sales and purchase gaps to policy instruments are behavioral statistics that complement the traditional Diamond and Mirrlees (1971)’s mechanical effect of taxation. Numerical results suggest turnover taxes can be welfare enhancing vis-a-vis a value-added system. |
| Keywords: | Optimal firms taxation, limited tax capacity, tax reform. |
| JEL: | H21 H25 H26 D60 |
| Date: | 2020–11 |
| URL: | http://d.repec.org/n?u=RePEc:wis:wpaper:2008&r=all |
| By: | Max Gillman |
| Abstract: | This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an increase in the tax rate causes the tax elasticity and welfare cost to increase in magnitude by more than with zero evasion. Keeping constant the ratio of income tax revenue to output, as shown to be consistent with certain US evidence, a rising productivity of the goods sector induces less evasion and thereby allows tax rate reduction. The paper derives conditions for a stable share of income tax revenue in output with dependence upon the tax elasticity of reporting income. Examples are provided with less and more productive economies in terms of the tax elasticity of reported income, the welfare cost of taxation and the tax revenue as a percent of output, with sensitivity analysis with respect to leisure preference and goods productivity. Discussion focuses on how the tax evasion analysis may help explain such Öscal tax policy as the postwar US income tax rate reductions with discussion of tax acts and government Öscal multipliers. Fiscal policy with tax evasion included shows how tax rate reduction induces less tax evasion, a lower welfare cost of taxation, and makes for a stable income tax share of output. |
| Keywords: | optimal evasion; tax law; welfare; tax elasticity; revenue; productivity; development; |
| JEL: | E13 H21 H26 H30 H68 K34 K42 O11 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp675&r=all |
| By: | Leenders, Wouter; Lejour, Arjan (Tilburg University, Center For Economic Research); Rabate, Simon; Riet, Maarten van ‘t |
| Keywords: | Inequality; wealth; tax evasion; Netherlands |
| Date: | 2020 |
| URL: | http://d.repec.org/n?u=RePEc:tiu:tiucen:8b755dfc-9376-4256-a10a-b48026e28c6c&r=all |
| By: | Ulrich Glogowsky |
| Abstract: | The desirability of inheritance and gift taxes depends on individuals’ tax responsiveness. This paper demonstrates how strongly, and in what way, the German inheritance and gift tax influences taxpayer behavior. To that end, it combines administrative data with cross-bracket tax variation: a convex kink in the tax liability precedes a concave kink. Extending the bunching approach to such double-kinked tax schedules, I document that individuals tailor their taxable wealth transfers to the schedules. One type of response dominates for inheritances: testators engage in testament planning. The magnitude of the testament-planning response is comparable to that of inter vivos gifts. However, neither the overall responses of gifts nor those of inheritances heavily interfere with tax revenue collection: the associated short-run net-of-tax elasticities of taxable wealth transfers lie below 0.1 |
| Keywords: | Wealth-Transfer Tax, Inheritance Tax, Gift Tax, Estate Tax, Real Responses, Tax Avoidance, Tax Evasion, Behavioral Responses, Bunching at Kinks |
| JEL: | H2 H20 H21 H24 H26 H31 |
| Date: | 2020–10 |
| URL: | http://d.repec.org/n?u=RePEc:jku:econwp:2020-22&r=all |